Someone asked me the other day if I thought a recession could be avoided by people having better personal finance management habits (having savings, living within their means, etc). I’m no economist, but I thought the question was interesting. I responded that it would very likely postpone or even eliminate recessions, reasoning that if people actually had some savings, and were living within their means, they could keep the economy afloat during cyclical recessionary periods.
With proper savings, you can even lose your job for a period of time and have no change in your standard of living. This kind of savings would help keep the economy going during hard times, but of course it would require an overwhelming majority of people to be doing the right thing financially, which is definitely not the case. But it leads one to think that in a way, recession is the punishment or resultant effect of society’s poor money habits.
What do you think? Can we avoid recessions with better money management habits?
June 4th, 2008 at 12:44 pm
Next time I see you I should give you a copy of a podcast I have (unfortunately it was only free for a week then it goes into paid archives). Anyways, it’s a documentary from ‘This American Life’ explaining how the current credit crisis happened. Very interesting to listen to if you have an hour to spare. It’s called ‘The Global Pool of Money’ and it talks about the chain of events and relationships that brought about today’s situation. Let me know if you’d like it and I’ll burn it to CD for you or email it.