Rethinking Consumerism

Posted on | March 24, 2009 | No Comments

“We have lived through an era where too often short-term gains were prized over long-term prosperity, where we failed to look beyond the next payment, the next quarter, or the next election.” — President Obama

What will be the next drive to consume?  It’s our patriotic duty in resulting in a Paradox of Thrift.  Consumerism is American, it’s the way we do things, and it’s become a sort of national pastime.  In a country where core beliefs are distilled to a bumper sticker we want it all and we want it now.  If I told you that you could have a $10,000 shopping spree at the mall today or retire comfortably when you’re 60 years old what would you take?  Tragically, I believe most people would take a shopping spree now.  There is a great article over on TheStreet.com about rethinking consumerism.

So as a nation in peril, what are we supposed to do?  We’ve seen the Paradox of Thrift, the ides that when people need to spend the most to save the economy is the exact time they’re saving.  This in turn drives the economy down further.  Anyone who is familiar with Sex and the City knows the picture here.  It’s a scene repeated throughout the show and a story line often used.  $500 shoes were the norm, even a basic necessity to the main characters.  And yes, I’m secure enough to say I’ve seen quite a few of the episodes with my wife.  I even went to the movie with her since her friends wanted to go late at night on a Thursday and she didn’t.

Having grown up in Phoenix for the first 27 years of my life I’ve seen it first hand.  You don’t really think Phoenix would be some sort of bastion of consumption but you’d be wrong.  There was a strong influx of what I’ll call “Image Conscious” people in the Valley of the Sun.  People moved from California, bought a nice house, two new cars, and played golf full time since real estate was cheap in Arizona.  It was at one point and then the real estate market took off.  Everyone had a guy they knew who made $50,000 over night on a house they never paid a dime for.  Contract to build it, wait nine month, sell it the day you close for a tidy profit.

Well this also sparked another form of consumption; Home Equity loans.  While there is nothing wrong with a HELOC, I have one myself, there is something wrong in leveraging the $150,000 in equity on your $300,000 that you paid $150,000 last year and then buying a Hummer or a boat.

Now something unfortunate is happening, those people who thought the good times would never end are losing their jobs.  They took out ARM loans which aren’t bad in and of themselves but they can’t refinance.  Because the house they bought for $150,000 that shot to $300,000 is now worth $150,000 again.  They owe $300,000 on it at a fluctuating rate and they’ve lost their jobs in the downturn.  Oh and gas was $4 a gallon this summer and their Hummer was thirsty.  It’s a lack of common sense and it’s not limited to the Phoenix market.  Irrational Exuberance was term coined by Alan Greenspan and it pretty much describes every bubble I’ve ever experienced.  The dot com boom was insane and the housing boom was the same way.

In the prophetic words of Warren G, “I want it all; money, fast cars, diamond rings, gold chains and champagne shit, every damn thing”.  Now there are things we can do to correct this.  First off, stop trying to outspend everyone.  There is a great book call “The Overspent American” that describes our desire to keep up with the Joneses.  However, in this era of the Internet and MTV we’re trying to keep up with Jay-Z and his billions or Tiger Woods and his yachts.  We want to live like LeBron James but we don’t want to work for it.  The tragic reality is The Hills is not reality TV, it’s scripted, they’re actors and not particularly good ones.  The real world involves working, paying bills, and living within your means.  Friends was sort of the first show people cited as giving a sort of slacker view of life.  They sat around in a coffee shop and I’m sure people moved to NYC to try it out.

The key here is it’s hard work, dedication, and determination to be able to live the lifestyle you want.  You can be rich, it’s very possible but unless you can find a way to repackage mortgages as other financial vehicles and collapse the largest economy and then get a tax-payer funded bonus you’re going to have to do it slowly.  Build wealth through investing, saving, and making your money work for you.  I told my wife the other day when our auto investment into the S&P was happening right as the market went from terrible to not as terrible that if she could time the market that well that she’d own Tahiti and could buy and sell Hawaii.  For the rest of us working slobs it’s slow going.

So how can you build wealth?  You can save.  Put money away for retirement and save until it hurts, then a bit more.  If you’re young, be aggressive. You could buy a house and watch it appreciate, you could buy a handful of houses and let them appreciate while someone else pays the mortgage.   You could start a business, patent an idea, or record a best selling album.  At best they’re hard work and a bit of a long shot, at worst their unrealistic.  You can’t sing and your idea for a shower toaster isn’t going to fly.  What you can do something with relatively little effort and actually put the things you own to work.  List your stuff on Crowd Rent and you can slowly recoup the money you spent on your pressure washer, your vacuum and your lawn mower.  Get rich slowly today at Crowd Rent.

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