The rich rules over the poor, and the borrower becomes the lender’s slave. Proverbs 22:7

Saving is deferred gratification--resisting an immediate reward in preference for a later reward. Debt, of course, is the opposite. My observation and concern are that the trend has moved so significantly in favor of immediate reward that it is (or will be) greatly affecting the standard of living in retirement for a lot of folks.

Materialism: a way of thinking that gives too much importance to material possessions rather than to spiritual or intellectual things. Merriam-Webster

A study titled, “Graying of U.S. Bankruptcy: Fallout from Life in a Risk Society,” found that between 2013 and 2016, the average rate at which 65- to 74-year-old Americans filed for bankruptcy increased to 3.6 out of every 1,000 individuals from a rate of 1.2 per 1,000 in 1991. The percentage of older folks in bankruptcy has never been higher. The rate at which Americans age 65 and older are filing for bankruptcy has more than tripled since 1991. Becoming dependent on governments, family and friends during retirement is a very serious matter.

Part of the problem is the relative reduction of safety-net programs, including Social Security and Medicare. Another factor is the shift from defined benefit pension plans, which guarantee a set income for life, to defined contribution plans (401-K type plans) which leave it up to the participants to determine how much to invest and, therefore, how much they will receive in retirement. But the more basic and significant problem is a lack of discipline to make the right choice between deferred gratification and immediate reward.

Whoever loves money never has enough; whoever loves wealth is never satisfied with their income. Ecclesiastes 5:10

The Federal Reserve Bank of NY’s second quarter report on household debt and credit indicates that consumer debts rose by $82 billion. Consumer debt has continued to mount up over the past four years and grown to well over $13 trillion in the second quarter. Household debt is almost 20% higher than it was five years ago and higher than it was before the financial crisis. It appears that memories are short, and we have gone full circle.

As you know, the Fed along with the folks in Washington have been busy for several years encouraging you and me to borrow, spend and invest in risky assets, especially since 2008. This makes the economy grow, creating more jobs and higher wages so that we can…spend more. And, if too many borrowers have insufficient credit, they can just change the rules. For example, a significant problem with getting a loan is having a debt in collections. This, of course, appears on credit reports. So, a series of changes have occurred in the past few years to remove such negative information from credit reports. According to Equifax, collections were completely removed from eight million consumers’ credit reports in the 12 months through June. This resulted in an average 14-point increase in credit ratings. That’s the way we do it!  

As you know, the Fed finally and began the process of raising rates in December 2015, just a smidgen at the time. But rising rates have done little to discourage borrowers. For example, In the second quarter, lenders originated $151 billion of auto loans, the most in 13 years. Mortgages rose to $9 trillion, the highest level since 2009.  

I denied myself nothing my eyes desired;

    I refused my heart no pleasure.

My heart took delight in all my labor,

    and this was the reward for all my toil.

Yet when I surveyed all that my hands had done

    and what I had toiled to achieve,

everything was meaningless, a chasing after the wind;

    nothing was gained under the sun. Ecclesiastes 2:10-11

QE times 3, TARP, ZIRP and other manipulative measures used to stimulate the economy have been effective. But wait, there’s more: we are in debt and don’t know how we will maintain our higher standard of living in retirement. Someone needs to do something.

Consequence: a result of a particular action or situation, often one that is bad or not convenient. Cambridge English Dictionary

I encourage everyone upon whom I have any influence to carefully consider your financial situation, especially as it relates to maintaining a comfortable standard of living during retirement. It will not take care of itself.

When I can help, please let me know.

At your service,

Gary Clark