Our Future Financial Selves

Today NPR’s Morning Edition carried an Interesting report on debt (you can find the story and audio here). Economist and Financial Times reporter Tim Harford described credit and saving in terms of our future and present “selves.” Harford said: "Debt is your future self sending you money back in time.“ (Economist Thomas Schelling also uses the symbolic conflict between our current and future selves to describe problems of self-control.) Harford gets at the crux of the issue when he goes on to say: ”So the question is, are you and your future self both happy with the deal?“

Only your present self is in the position to make decisions and take actions, and yet the choices you make in the present often obligate your future self. So what would we say about all those financial decisions looking back on them with the wisdom of the future? Harford also described saving as your present self sending money to your future self, and argued that it is possible to save too much (when you have little income). Unfortunately, not being able to save enough, rather than too much, is the problem for far too many Americans. But Harford is exactly right when he says the challenge is to find the right balance between the needs of our present and future selves—a particularly difficult challenge in a world as uncertain as this one.

Something Happened in the 1970s Redux. The graphic below, which was posted on the NPR website to accompany this story, shows two interesting things. First, as I discussed in an earlier blog entry, the real uptick in consumer debt begins in the mid-1970s. This would be even easier to see if the graph extended farther to the left, perhaps beginning in 1950. Second, because the graph superimposes periods of economic recession, it shows that consumer debt often increases even in bad economic times. This is particularly obvious in the most recent recession of the early 2000s, but it can also be seen in the period of 1981-83. We have a troubled relationship with debt that transcends the current economic environment.