Tue 20 Jan, 2009 06:32 pm
I was brought up to observe the principle that one would should never buy anything unless one had saved the money for it.
The only exception would be the purchase of a house.
Understand that I am considering a family where all of working age were expected to learn for the best qualifications achievable, obtain a job and try to develop owns own career.
There would be no need to arrange credit in order to establish a business etc.
One knew that certain consumables, utilities and services contracted for (gas, electric, water, house insurance, personal insurance, car tax etc.) would bring future bills (which could be estimated if unknown).
One also knew that at unknown times in the future there would be intermittently occurring costs for new clothes, hobbies, repair of ones property, maintenance, presents etc. These were unpredictable costs, but nonetheless needed funding. One gradually learned how much was enough to cater for arisings and to anticipate how these costs were likely to rise and fall at different times of life.
To achieve the no-credit state one needed to build a 'pot' of unspent money. This pot became known as 'savings' and would also serve to generate income when pensionable age was reached.
This financial approach to life meant that one lived within ones means and was able to make every penny count (except for the effects of inflation) by foregoing some spending.
One placed ones unspent money with a bank (also for greater security) and received some interest which eventually could be used to produce income and avoid being a burden on Society.
This frugal approach has now led to the frightening 'credit crunch'.
It seems the banks lend our savings to those people who do not adopt the same principles as those I have adhered to.
These people do not wait until they have sufficient unspent money for whatever they wish to purchase. They borrow and the banks lend (at a cost to the borrower).
So it seems that people who do choose to live frugally have caused the 'credit crunch'.
Ironically, those with debts just declare themselves bankrupt and depend on taxpayers money which the government doles out, whilst those with savings end up with insufficient interest and no hand-outs because they have capital.
The only long term solution I can imagine if frugality is to continue in future (my desire) is for savers to keep their money at home and receive no interest (as is happening now).
It will be necessary to provide some sound home security arrangements.
Borrowers will no longer be able to borrow and will have to become savers.
Government will lose all taxes on savings and investments, so workers and spenders will find their taxes going up.