Old School Banking Will Save Us from Debt

David Blankenhorn and Barbara Dafoe Whitehead, New York Daily News, 11/17/2008

If you want your ship to come in, forget about spending a few bucks each week on lottery tickets. A little bit of luck will now come in the form of spending each month a little bit less than what you earn. What’s left over goes into a savings account. A fancy idea? Hardly. Your grandparents probably did it, and it worked for them.

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Subject: Thrift

More by: David Blankenhorn and Barbara Dafoe Whitehead

Our new economic reality is now quite clear. The old debt culture is dead. The Age of Thrift has arrived.

While the federal, state and city governments try to sort out the financial fiasco that has brought the economy to a virtual standstill, it isn't just the politicians and billionaires who must now figure out how to kick the debt habit.

Consumers, too, have to change their ways.

With foreclosures up, the stock market down and the total amount of consumer debt in the United States at nearly $2.6 trillion, the old way of doing business is over.

If you're short on cash, but just gotta have that flat-screen TV, then you have to be able to pay for it upfront. The old "rent-to-own" scheme, in which you put down about $5, took the TV home that very day and agreed to pay about $20 a week for the rest of your life, won't cut it anymore.

The new way may well involve a layaway plan, a blast from the past based on the quaint notion that you actually had to afford something before you could own it. The layaway idea is simple: you pay the store a few dollars a week until you've paid the regular price for the TV. Then, you take home the TV. About as complicated as a piggy bank. In fact, the layaway plan - which is now being promoted by Kmart and other stores as the next new thing - is in fact nothing more than a store-sponsored piggy bank, in which you save up money to buy what you want.

When it comes to purchasing that dream home, forget the mortgage brokers who secure a loan from a bank you never heard of at a price you know you can't afford. Any time you as a homebuyer don't understand the exotic-sounding jargon - debt derivative, anyone? - then almost certainly the smart move today is to walk away.

Things are about to get simpler. In the Age of Thrift, you as a homebuyer will walk into a local community bank, make an agreement with the loan officer for a home mortgage, offer at least 20% in a down payment and then start repaying the bank. About as exotic as grandma's nightgown.

If you want your ship to come in, forget about spending a few bucks each week on lottery tickets. A little bit of luck will now come in the form of spending each month a little bit less than what you earn. What's left over goes into a savings account. A fancy idea? Hardly. Your grandparents probably did it, and it worked for them.

Even our political ideology must change. We should stop supporting those politicians who, like President Bush, constantly are urging everyone to go to the mall and spend all their money in order to keep the economy going. If the terrorists hit us, shop! If the economy starts to tank, shop! Here's a stimulus check for more shopping!

That idea is so yesterday. From now on, let's support the politicians who are going to figure out ways to help us save some of our money. These are the leaders who understand that not even a country as great as America can prosper over time if we are constantly digging ourselves deeper and deeper into debt.

In the Age of Thrift, there will be higher penalties for haste and waste, and more rewards for steadiness over time and the wise use of small amounts.

There will be less focus on today, and more focus on tomorrow. People will spend less time asking themselves "How much do I have?" and more time asking "What should I do with what I have?"

All of this will be necessary. But here's the real payoff: Thrift is much more than the belt-tightening required by hard times. At its best, thrift is a positive vision of shared abundance and sustainable prosperity. Thrift is not just a medicine for when we are sick. It's a practical strategy for the good life.

This article originally appeared here.

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