Tuesday, August 4, 2009

Random Thoughts

The past month provided some very interesting changes. Stock markets continued their upward ascent, posting their fifth monthly gain in a row. The reason? Better-than-expected GDP data in the U.S. and corporate earnings in the second quarter that have largely beat expectations.

The Dow Jones industrial average gained 7 per cent on the month, making it the best July since 2002 for the index. The S&P 500 rose 6.95 per cent in July. In Canada, the economy contracted by 0.5 per cent in May, worse than consensus estimates of 0.3 per cent. Still, the S&P/TSX rose 4 per cent in July.

Recessionary forces are still prevalent in Canada, but the effects are easing. As most experts had predicted, the third quarter is looking very promising. In the past year, the Canadian economy shrunk 3.5%, most of that in goods production which shrank 9.9%

Does this mean we can pack away the panic button? Not yet. Unemployment remains at 15 year highs, and eventually interest rates will climb pushing those who racked up "bad debt" to the brink. Personal and corporate bankruptcies will continue. Nonetheless, as mentioned previously, there is light at the end of the tunnel (and it no longer says AMTRAK on the side).

What are the best lessons from the past year? Looking at things from the bottom up, consumers need to better heed the want/need approach to life. I would love a new 52 inch flat screen and blue ray player. Do I need them? No - I simply want them. Would I be better served spending my money replacing a perfectly good TV with a newer flashier model or paying off a debt. How about a blue ray with great picture quality versus saving for retirement or a child's education. If you can afford to go out and buy these types of items and pay cash, please feel free to do so. If no one spends money, the economy will never turn around. That being said, it is frightening how many people know so little about finances. They run amok and spend without regard to their futures. I'm not a fan of CSI Miami, but the other night they had an episode where a young "couple" attempt to commit suicide. The reason? A credit card company that preyed on students by offering them credit they could not afford or qualify for. Sounds suspiciously like the US banking and housing crisis doesn't it.

Gail Vax-Oxlade has a television show where she works with people with poor finances. In her recent blog, she states:

"I’m not sure what this comes from… this don’t-much-care attitude toward our money and the role it plays in our lives. It could be that we want to distance ourselves from the “money-grubbing,” “money means everything,” “money is what counts” attitudes some people display. We don’t want to be those people so we throw out the baby with the bath water. We spend years ignoring the most basic rules of money and then, if by chance we convert to Money Maniacs, we spend years trying to make up for what we’ve missed by becoming rampant Frugalistas. Or we come to believe that nothing can ever be different and that we might as well just blow it all now and have a great time.

Fact is people, money is the tool that gets us the things we need and the things we want. And since we work so hard for our money, we should be willing to work equally as hard making it do what we want. No control doesn’t mean you’re free, it means you’re stupid! And over-control means you become a slave to the tool. Balance is the key. We must balance today’s needs and wants with tomorrow’s dreams, while taking care of any mistakes we’ve made in the past. Balance is how we get to have money AND a life.

So how do you get through to your young person just how important it is that they save something of what they earn and that they put it to work early? How do you convince them that just because they’re making more money doesn’t mean they have to spend it all? How, in a society where credit is as common as air, do you convince the young-and-wanting that they should NOT use credit? And is the old saying, “take care of the pennies and the dollars will take care of themselves” really going to have an impact on our next generation?

Wow! Could not have said it better myself.

Stay Well and Pay It Forward.

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