What Would Happen if Everyone Became Financially Responsible? Part II

Economy Josh on 28 Jan 2009 12:29 pm

What Would Happen if Everyone Became Financially Responsible? Part II

This is the second in a two part series on what the country would look like if everyone suddenly became financially responsible (click hereto read part I). If this is your first time visiting Centsability to Wealth you may want to see what we are about or read our introductory post.

Yesterday we talked about the short-term consequences of the entire country suddenly becoming financially responsible, and it wasn’t pretty. With people choosing to pay off all their credit card debt, save for retirement, build adequate emergency funds and make all the other financially wise decisions, the country begins to lose millions of jobs. The historically high unemployment creates unseen levels of crime and hikes in taxes.

Despite all this, people kept being responsible with their money, with the belief if we could make it through the initial horrors, our long-term future would look much better.

We made it through. Barely. Here’s a look at the long-term future of our new, financially responsible economy:

The Job Market

With people saving at least 10 percent of their salary for retirement, the age at which people retire begins to go down significantly. Soon, most people are retiring in their 50’s. This helps create a consistently stable job market with positions opening every year for the next wave of workers.

And with people taking control of their own finances, the government begins to save billions of dollars on welfare and unemployment, which they use to infrastructure and energy projects. This creates even more jobs.

In time, job placement for all college grads nears 100 percent.

The Housing Market

With people only buying as much house as they can afford, and making wise purchases, home prices begin to stabelize.

With no more speculative real estate investing, emotional buying or ARM loans that get janitors into $500,000 houses, the wild swings in home prices cease to exist. A steady five percent appreciation is seen in nearly all homes.

Those who can afford to buy a house save for a 20 percent down payment and then purchase one within their price range. Those who cannot afford to buy a house, rent (and pay their rent on time each month).

Other than a few random cases, foreclosures become a thing of the past.

Social Effects

Since financially responsible people are much more likely to tithe, charitable organizations begin to thrive to the point that the government no longer has to help. Welfare and unemployment are now run through charities with little government involvement and very few people in need of using them.

Poverty is mostly eliminated and while there is still a wide gap between the top and the bottom of net worth spectrum, the difference is shrinking.

Not to be confused with socialism, this new economy still rewards people based on their individual abilities and work ethic, however people unable to make a large income are able to over come their fate with wise financial decisions.

As a result of cutting poverty, crime sees an enormous decline. Not only does this allow people to feel more secure it again reduces taxes due to needing less law enforcement.

Summing Up

This little two part series on what the economy would look like if we all became financially responsible is based on nothing but my own opinion. While I do think a lot of it is very realistic, it’s impossible to know what would actually happen and I am not an economist.

But the point of this is to show that it may not necessarily be a good thing for everyone to become frugal. Yes, the long-term forecasts look good, but in my opinion the short-term ramifications would be too much to overcome.

The point is that capitalism needs a balance of spenders and savers to survive and thrive. While I will certainly be doing every I can to become financially responsible and encouraging others to do the same here, it will only work if others continue to spend money.

We are currently seeing the results of what happened when our economy went too far towards the spending spectrum. A dramatic shift the other way could be just as devasting, or worse.

Please continue sending any personal finance related questions to centsabilitytowealth@gmail.com.

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