Comments on: “Sustainable Spending”…a new measure for the Economy?

By: contract management

contract management — Tue, 22 Sep 2009 06:16:44 +0000

Financial commentators have called for more research on sustainable spending rates for individuals and endowments holding diversified portfolios. As one of them is me and I also use this term in my portfolio.

By: audiokabel

audiokabel — Mon, 21 Sep 2009 12:00:52 +0000

Great article. Existentially, there is no such organism as “the economy,” there are only individuals acting for their own self-interest. A state of affairs where individuals sacrifice their welfare for some notion of “what’s good for the economy” . Americans need to save more so that we can finance investments in the economy instead of borrowing the money from other countries. Granted this increase in saving will slow the recovery but it does not necessarily undermine the effectiveness of the stimulus bill. Without the stimulus bill things would simply be worse. It’s true that there’s a theory that says that consumers save more when the government stimulates the economy because they believe their taxes will go up as a result of the stimulus so they set money aside to pay the tax collector. If this theory were true, we would have to conclude that the stimulus caused the higher savings and thus has had little or no net effect. They are saving more, in my view, because of uncertainty about job prospects, the stock market, and the value of their homes. I’m doubtful that the savings rate will go a lot higher or remain at elevated levels for very long because I think we have become a credit-based economy in which a culture of savings has lost its sway. If you look at each birth cohort’s savings rate you can see a secular decline that to my way of thinking is more about culture than economics.

By: Medici

Medici — Wed, 04 Mar 2009 23:27:18 +0000

It’s difficult to change the perception of savings when our Public Policy encourages and rewards our citizens that are in debt and penalizes those that save.

There’s no way around it, our economy needs to adjust from one that consumes and contributes over 70% or our GDP to one that relies more on production and savings. Savings can foster productive enterprises, and our banks should focus on ways to help consumers save more money. It’s kind of hard to do that when a bank pays you 1% or less on a simple savings account and then in turn loans the money out at 5-6%. Great business model except that the concentration of lending continues to be in real estate rather than on innovation.

What can you guys do to corrent this?

By: cm_icc

cm_icc — Tue, 24 Feb 2009 11:02:29 +0000

i agree with the notion. in fact i use the mark ’sustainable spending’ in my financial planning and investment advisory business.
it is a paradigm shift i made subsequent to my readings on consumption smoothing, which looks at spending over one’s and one’s household’s lifetime.

By: Annalie Killian

Annalie Killian — Fri, 20 Feb 2009 23:43:47 +0000

Hi Jeff, I liked the term you introduced…”Sustainable spending” and there should be an equivalent for saving…like “saving consistently”.

There is nothing like necessity and shock to radically interrupt a pattern, but in the longer term, the falling house prices may once again help people to buy and own their own homes without being a slave to impossible and spirit-crushing debt for life. I think that psychologically, in Australia at least, the bubble on house prices made it such an impossible target for people that many reasoned “Oh well, I may as well, enjoy what I earn because I’ll never be able to afford a house”- and then that spirals into a culture of consumption with credit cards raining on the very people that have least ability to manage money. I wonder if the research might support the notion that a too hard target becomes a demotivator and dis-incentive to even try to save.