Bruce column April 13, 2009
Growing up as the son of a father who had vivid memories of the great depression of the 1930’s and being very aware of the current world wide economic recession, I reflect often on conversations I had with my dad about money, the importance of being frugal and avoiding debt. Dad died in 1999 and at that time things were pretty good. The country wasn’t involved in a foreign war and the economy was relatively stable. Credit was readily available, people were buying cars and houses, everyone who wanted to work had a job, banks were not failing, and big national corporations were not looking to the government to bail them out of their financial problems. Life was good.
Dad always told my brothers and me as we were growing up that he couldn’t understand how the price of things could keep going up. If prices kept gong up people could no longer afford to buy the necessities of live let alone a few of the luxuries. I would always argue that it’s all relative. Yes, things cost more and the prices continue to rise, but people also make more money and will continue to make more money so they can afford the higher prices.
I can remember as a youngster discovering that my dad’s income working for the railroad was $10,000 per year. I thought that if I could ever get a job that paid $10,000 per year I would have it made. I also remember dad telling that his first and only house cost around $7,000. The payments were less than $20 per month it was a real struggle to make the payments and he thought he would never get it paid for.
He found it hard to believe that in 1966 I paid $16,000 for my first home in Missoula Montana. He found it harder to believe that I paid $35,000 for a home when I moved back to Idaho. He was flabbergasted when he found out that I paid $90,000 for a home in 1985 when I took a job at the newspaper in Bozeman. I didn’t dare tell him what I paid for my home in North Logan when we moved here in 1993. I know he would not have approved, it was simply too much money and I would never get it paid for.
As dad grew older he continued to be obsessed with the fact that things cost so much and continually warned us that the good times couldn’t last forever and we were headed for another depression. He strongly admonished his kids to avoid debt like the plague. Going into debt for a modest house was OK, and maybe even for a car, but that was it. He advised us to be frugal in the way we lived and spend our money. He sincerely believed that we should fix it up, wear it out, make it do, or do without.
Dad was right when he said that someday there would be a huge economic correction. Prices and wages simply couldn’t continue to escalate as they had done for most of his adult life. The present economic correction is nothing like the great depression of the 30’s but it is the most drastic economic correction of my lifetime and is a cause for concern. Some families find themselves in houses that have decreased significantly in value and have discovered that they are upside down which means what they owe on the house is more than the house is worth. Many find that they have more credit card debt than they can afford and are paying huge amounts of interest to the credit card companies. Some people have gone into debt for expensive toys such as snowmobiles, motorcycles, boats, furniture and find themselves with huge payments they have a tough time making. Those who are a bit older, like me, have found that what they have been putting away for retirement has significantly decreased in value because of the huge drop in the value of stocks and mutual funds. Almost everyone has felt the effects of the economic downturn.
For what it’s worth I am confident about the future. In fact I think there are signs that we have reached the bottom of the recession and will soon begin to crawl out of the economic problems we have experienced over the past six to nine months. Some of headlines in last Friday’s paper gave me hope that the country has reached the bottom. Wells Fargo Bank nationally predicted record earnings, unemployment benefit filings nationwide have dropped, several large national retailers are predicting solid sales for April, and the stock market closed over 8,000 last Thursday after being down below 7,000 just a few months ago. All of the above in my view is good news and gives hope that things are beginning to turn around.
Also for what’s its worth it is my opinion that we in Cache Valley have been somewhat isolated from the serious economic problems that many parts of the country have felt. We simply haven’t suffered as many severe economic hardships as the rest of the country. The unemployment rate is higher than we would like but not as high as the rest of the country. Retail sales have suffered, but not as much as the rest of the country. Houses have decreased in value, but not decreased as much as the rest of the country.
Historically the economy has up and down cycles and there is no doubt that we are in a down cycle right now. But, the economy will recover over time, it always has. So when the recession is over what is the take home lesson that we should have learned to prepare for the next down cycle that is inevitable? My dad gave his sons good advice. Avoid debt like the plague, live modestly, save a little bit each payday, don’t be wasteful, and if possible fix it up, wear it out, make it do, or do without.