Choices for the Individual

individual-choices I am very interested in the ongoing discussion on the topic of America’s newfound sense of frugality and thriftiness.  For many, this is less a choice and more of a forced reality. But for the lucky few that have so far escaped the pink slip, and have not been wiped out by the market, nor devastated by a drop in their property value, the debate rages on.  It would make sense to be more careful with one’s purse string in face of uncertainty, if not to display some sense of solidarity with their compatriots.

Yet the consumerists in us question the wisdom of saving. After all, there’s the danger of deflation if everyone withholds spending, since some of us are still more than capable of spending.  And then there’s the Paradox of Thrift.  Regardless of which direction the discussion goes, the conclusion also revolves around the matter of choice. As in, you do what is best for you, and your situation. But are our situations really that special? Are our lifestyle choices and consumption patterns not dictated by much bigger forces?

The more I think about it, the more I realize how little choices matter in the grand scheme of things.  Much of our spending patterns are pre-determined by choices made by the systems we live in.  For a reasonable and average American, many were swept up by much bigger forces that culminated in financial disasters. Stagnant wages against a culture that encouraged consumption, an inflationary marketplace, rising housing prices and easy credit provide all the necessary ingredients for one to get over-extended.

For example, people have praised the high saving rates in Asia for decades. But while giving some credence to the idea that Asian societies are big savers as a result of culture, we cannot overlook the impact that social arrangements have on people’s consumption and saving patterns.

For example, health care and unemployment are two things that can throw everything off-balance.  Health care is the the largest cause of bankruptcy in America. So for societies such as the US and Japan, where reliable health care is inextricably tied to one’s employment status, the consequences of unemployment can be devastating.  Without a cushy European-style welfare system, and facing unfavourable demographic shifts and a shaky economy for the past few decades, it would make sense for the already cautious Japanese to insure against an uncertain future through diligent savings. In China, a dismantling of the state healthcare system accompanied the growth of the economy, resulting in a large portion of the economy un-insured, or only partially insured.  So saving for unforeseen events make a lot of sense for those countries.

Similarly, taxes cannot be overlooked.  Not only in terms of what it takes away from our paycheck, but for the behaviour it induces. Tax incentives are there to steer us towards certain favourable behaviour when it comes to educational savings for our children, as well as our retirements. Tax deduction on mortgages encourage us to own instead of rent. High taxes on alcohol and cigarettes discourage us from indulging in vices too much.

Since living in the Netherlands, I have become aware of the amazing amount of input coming from the government and affiliated authorities. To encourage the purchase of smaller cars, taxes are levied incrementally depending on the size of the vehicles.  Not only upon purchase, also when it comes to road taxes and various maintenance fees. But clearly, all segments of the car industry needs access to the market.  So to alleviate the problem of overly expensive new vehicles (new vehicle taxes are exorbitantly high), most companies provide their employees with leased cars at a somewhat subsidized rate. The more seniority one has in the company, the larger (or more luxurious) set of vehicles one gets to choose from. That way, people get to drive around new cars that are most likely more fuel efficient and affordable, and companies shoulder a part of the cost but no doubt write it off as an expense.  The old ones get driven back to Poland by migrant workers.  Everybody wins.

When it comes to spending, credit cards are much less common here than in North America. Back home, I needed a whole other wallet to hold my various bank issued credit cards, department store credit cards, and all those bonus point cards.  Over here, credit is barely used, and debit cards are king.  Similarly, the average citizen knows nothing of the stock market, nor are they interested in the ups and downs of the market, because few are directly invested in one.  All these have to do with an intricate design at the top level that either actively encouraged, or passively discouraged certain actions.

Bottom line: we think we call the shots in life.  But we really don’t.  Many choices had already been made for us before we even knew they were there.

picture source: osokin

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