When people end up in financial trouble, you often hear tsk-tsking about premium cable and fancy vacations. But if you talk to bankruptcy lawyers and financial counselors, that isn't the normal story you hear. You're more likely to hear about car loans, mortgages, alimony. In other words, it's not the luxury splurges that do you in -- it's the fixed expenses. That's because discretionary luxury expenses can be cut in an emergency, while the fixed payments go on and on until they empty your bank account.She might be a libertarian in her politics, but she is a lot like a Canadian in terms of fiscal prudence. Now I agree that there may be larger social issues that are making it harder for people to meet fixed expenses (e.g. wage stagnation) but at an individual level this is a calculation well worth making.
Friday, March 28, 2014
Fiscal prudence (a never ending saga)
This is an important point about financial planning from Megan McArdle:
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The connection between libertarian ideology and fiscal prudence is an interesting one. In particular, I'm thinking of Greg Mankiw's notorious slam on Sonia Sotomayor for not saving more money (even though Sotomayor has lifetime job security, no kids, and no real reason for a nest egg). It seemed clearly a moral dimension to Mankiw, that Sotomayor deserved less respect as a person because she did not save what would be, from economic theory, an irrational amount.
ReplyDeletePerhaps this is all no coincidence, in that, to the extent people are fiscally prudent and don't get bad breaks, they can do well in a freewheeling economic system. In that sense, the precondition for a libertarian system is prudent behavior.
As a Canadian can you help me understand what Canadian fiscal prudence is? Thanks.
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