‘We can’t afford it.’ They are simple words and the concept is so critical. Yet society has a difficult time accepting the notion that you can’t spend more than you have.
The YWCA is a great organization that does a lot of great work for women and their children in Vancouver. In the 1980s, I served as an economist on its board of directors.
I was not popular.
Ideas would be brought forward for new projects – great ideas, things that really needed to be done that fit perfectly with the group’s mandate. Everyone would be very keen to get going and I was the one who would say, ‘No. You can’t do it.’ Not because it wasn’t a good idea that would really help women and children and meet the mandate, but because the group did not have the money.
Some good ideas were not followed up. Others proceeded only after fundraising. The board learned the hard lesson that you cannot do or have or get what you don’t have the money for. By taking the painful steps to live within its means, the YWCA was and remains a financially viable organization that continues to fulfil its mission.
Far too many individuals and organizations have not learned to say and accept those hard-to-swallow words: ‘We can’t afford it.’ A recent study showed than many Americans, even those with comfortable or better incomes, could not put their hands on as little as $400 should an unexpected expense arise. That amount would not cover a car repair. In Canada, our high levels of personal debt show we are not in any position to gloat.
Governments, too, have to learn to tailor spending to income. In its last budget, the federal government said it plans to overspend its income by three times more than it projected during last year’s election campaign. And it intends to stay in the red well into the future.
Likewise, the provinces and other government organizations often determine all the nice things they would like to do for us and proceed without paying attention to available funds. They plow ahead regardless, letting the resulting debt fall where it may.
A particularly scary example is being presented by school boards across B.C. The provincial government has provided budgets that are not as generous as the boards would like. Cuts are necessary. But instead of making the hard choices that firms and families must make when incomes decrease, the boards hope to carry on spending anyway.
Is this the kind of example we want our education system to provide to our children? When Jane comes home from school and learns that there will be no summer camp this year because Mommy’s work hours have been reduced and there is less to spend, she could reply that her school got less money but they aren’t cutting back. They are spending just the same. Let’s just pretend the money is there.
In some cases, ‘fake it until you make it’ works. If you pretend to be happy, studies show, you will become happier. Unfortunately, it doesn’t work when it comes to finances. Pretending to be rich and spending accordingly will only leave you further in the hole.
So what should we be teaching our kids about money management, in class and by example?
First is the very basic premise of spending less than you make and saving the difference. Everyone sleeps better with a few months of income in the bank rather than having to panic over an unplanned car repair. Learning to say the magic words ‘We can’t afford it’ adds to the bank balance and to peace of mind.
Second, you can increase the amount you have to spend on what is important. Working more is an option for some people. Planning your career with the entrepreneurial question ‘What good or service can I provide that someone is willing and able to pay for?’ usually leads to higher incomes than choosing studies or a career without looking at the job and income prospects.
Finally, spend on things that are most important. Become more efficient in how you spend and divert spending from trivial things to what you really value. It will result in you being wealthier and happier.
These are the financial values our school system should be teaching our children, and that we should embrace as a society.
Troy Media columnist Roslyn Kunin is a consulting economist and speaker.
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