Some economies with similar financial problems, often notably the United Kingdom, are arbitrarily excluded. European Union member states are obliged to ensure their debt does not exceed 60 percent of their GDP.

It will be interesting to examine the debt levels of the PIIGS compared with other countries in the European Union (EU). For this I am using Google Public Data Explorer with the Eurostat dataset. First the PIIGS government debt as a percentage of GDP:

PIIGS general government debt as a percentage of GDP (click to enlarge)

Government debt is not supposed to exceed 60% of GDP. The PIIGS all exceed this except for Spain. But what of the EU as a whole? Observe:

PIIGS and EU general government debt as a percentage of GDP (click to enlarge)

The EU weighs in with a hefty 73.6%, worse than Ireland and Spain. Methinks there are more PIIGS in the sty.

PIIGS and EU general government debt over 60% of GDP in 2009 (click to enlarge)

We see that there are 12 EU countries over the 60% limit at the end of 2009. Spain, one of the PIIGS, is lower than them all and hence is not labelled. There are some large non-PIIGS economies in the top 12, namely France, Germany, and the United Kingdom. Notice that Belgium, Hungary, and France are at a higher percentage than PIIGS Portugal. Germany, Malta, the United Kingdom, and Austria also weigh in higher than PIIGS Ireland.

Is it any wonder that the Euro is dropping in value? The whole Eurozone is practically one gigantic PIIGS sty. But the EU is not alone — the U.S. gross debt is 87% of GDP.

Play with the numbers yourself at Google Public Data Explorer. I have set it up to start with the PIIGS economies but you can add in more of the EU countries.

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I became acquainted with the power of zero early in life. The power of zero was my financial plan. Very simple really. The nearer my balance approaches zero the slower my spending. Worth repeating, in bold, italicized, and indented:

The nearer my balance approaches zero the slower my spending.

Zero was that grand guardian against excess. The magical cipher to hold one solvent. Admittedly, I did the work. I was the one who was disciplined to keep myself from falling into the abyss of interest payments. There was nothing to it really. Of course with any simple plan there are pragmatic principles present on the periphery. The power of zero is bolstered by these simple truths:

• Borrow only for home, health, and education.
• Debt is worse than the plague.
• Be charitable.
• A bargain is not a bargain if you don’t need it.

Once you absorb this power into your life be careful to always be true to zero. To illustrate: I once went against my own rule of borrowing by getting a loan to take my family to Disney World. I borrowed thousands of dollars that then had to be laboriously paid back over several years, with interest. This is where I learned that once the zero barrier is broken, there is no resistance to further spending. There is only one zero, nothing else has the power of nil. Fortunately I came to my senses, paid back the loan, and got on the positive side of zero again.

No, there is naught like the power of zero.

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Start saving for the "rainy day"

There is a crunch in the American economy and times are hard now. How is it possible to survive in this financial crisis? It is about time that you start saving for the “rainy day”.

Every family has an individual lifestyle to maintain. Here are a few tips, which can help you to save money, without compromising on the living standards.

1. Do not waste food. Serve leftovers the next day. This will help in resisting the temptations of eating out.
2. Tired of wearing the same old clothes? Instead of buying new ones, swap your wardrobe with close friends. This will freshen up your wardrobe to an extent.
3. In case of errands, plan an efficient route so that all your tasks are done and you save money on gas too.
4. Looking for some entertainment? Swap DVDs with friends or rent a movie. You can also go for a bargain matinee show.
5. Prioritize your debts, if any. Pay off bills promptly. This will help you to maintain a positive credit score. Not paying off debts on time would hamper your credit scores. In the long run, if you ever accumulate debt, it will become difficult for you to consolidate debt with a bad credit record.
6. Try to increase your incomes by pursuing your hobbies, or renting your garage.

There are various ways of saving money. All you need is the knowledge about what and how you are spending on. Once you know that, you will know where to cut your expenses as well. Saving money requires determination as you need to change some old habits, and also reconsideration of your priorities. Once you start saving, it is going to act as a boost. You would want your savings to grow and thus would start saving more.

Photo Credit: argo_72

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But there is still the outstanding debt of trillions of dollars. Congress in a display of unparalleled common sense tackles this by treating the debt as if it was a 30 year mortgage. In my scenario (sadly imaginary) Congress is able to secure a 3% fixed interest rate for 30 years. In the table below is the schedule of payments. If you cannot see the table click here. I have included other rates of interest in the event that you think 3% is unrealistic.

The dollar amount of the debt is obtained from Treasury Direct’s Debt to the Penny, which I have rounded to the nearest billion dollars. The date in the top right-hand corner is the day the debt reading was taken. The highlighted figures are the yearly amounts paid (the sum of 12 monthly payments), depending on the interest rate. All dollar amounts are in billions. So for $12,345 billion, which is $12 trillion, just add nine zeros like so: $12,345,000,000,000.

I will periodically update the debt reading. The sooner we start paying our mortgage the better. Default is not an option. Refinance now while interest rates are low!

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With the Dow barely recovering off a twelve year low it will be profitable to hear what a prophet (though he was not prophesying) was saying back in 1998.

We have witnessed in recent weeks wide and fearsome swings in the markets of the world. The economy is a fragile thing. A stumble in the economy in Jakarta or Moscow can immediately affect the entire world. It can eventually reach down to each of us as individuals. There is a portent of stormy weather ahead to which we had better give heed.

He had concerns about debt, bankruptcies, and advertising:

I repeat, I hope we will never again see such a depression. But I am troubled by the huge consumer installment debt which hangs over the people of the nation, including our own people….Everyone knows that every dollar borrowed carries with it the penalty of paying interest. When money cannot be repaid, then bankruptcy follows….We are beguiled by seductive advertising. Television carries the enticing invitation to borrow up to 125 percent of the value of one’s home. But no mention is made of interest.

He has just mentioned borrowing against the value of one’s home and continues to advise about homes and emergencies:

I recognize that it may be necessary to borrow to get a home, of course. But let us buy a home that we can afford and thus ease the payments which will constantly hang over our heads without mercy or respite for as long as 30 years.

No one knows when emergencies will strike. I am somewhat familiar with the case of a man who was highly successful in his profession. He lived in comfort. He built a large home. Then one day he was suddenly involved in a serious accident. Instantly, without warning, he almost lost his life. He was left a cripple. Destroyed was his earning power. He faced huge medical bills. He had other payments to make. He was helpless before his creditors. One moment he was rich, the next he was broke.

Now he tells a story about President Faust which I actually used in making a decision three years ago:

What a wonderful feeling it is to be free of debt, to have a little money against a day of emergency put away where it can be retrieved when necessary.

President Faust would not tell you this himself. Perhaps I can tell it, and he can take it out on me afterward. He had a mortgage on his home drawing 4 percent interest. Many people would have told him he was foolish to pay off that mortgage when it carried so low a rate of interest. But the first opportunity he had to acquire some means, he and his wife determined they would pay off their mortgage. He has been free of debt since that day. That’s why he wears a smile on his face, and that’s why he whistles while he works.

Three years ago I had $31,000 left to pay on my mortgage. The interest rate was a fixed 4.9%. I had saved all of the $31,000 with the intent of paying off my home. In making the decision I remembered President Hinckley telling the story about President Faust which convinced me to go ahead. So why would you pay off a debt with such low interest? Because if the debt isn’t paid promptly the money could be spent on luxuries. Then the debt is still left to pay when your financial situation could turn for the worse. And yes, I wanted to whistle while I worked.

And finally:

I urge you, brethren, to look to the condition of your finances. I urge you to be modest in your expenditures; discipline yourselves in your purchases to avoid debt to the extent possible. Pay off debt as quickly as you can, and free yourselves from bondage.

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1. What advice would you give for teaching young children and teenagers these principles?

First we need to identify the principles mentioned in the post. They are:

1. Debt is worse than the plague.
2. Never pay credit card interest.
3. Borrow only for home, health, and education.
4. Pay tithes and offerings.
5. Be charitable.
6. Never co-sign for a loan.
7. A bargain is not a bargain if you don’t need it.

Obviously some of these principles would be lost on young children. The easiest principles to teach them would be tithes and offerings. When offerings such as for the Fast are made this is being charitable to the poor or those in temporary need. Number seven on our list can be taught by allowing safe but unwise purchases so that children can learn by their own experience what is and isn’t a bargain.

In our home we kept a small box that contained change in a small can and dollars in an envelope. It also contained tithing slips and envelopes. When the children received their allowance my wife and I would help them figure their tithing and write out the slip. We had change on hand (in the small can) so that they could submit the correct amount. By the time they were teenagers they took care of their tithes and offerings by themselves.

When the children reached twelve or thirteen I would open a credit union account for them complete with checks and a Visa debit card. Around eighteen I would make sure they got a credit card. That way they could start building a credit rating without me having to co-sign for a car. The credit card had a $200 limit which was raised over time.

Was it successful? The children know how to handle credit cards without incurring debt. They automatically pay tithes and offerings. They are very good savers.

2. What works better than conventional strategies?

One thing I did when the children were young was to open a savings account at the bank. This was no ordinary account. It was a Black Hole Account. This meant that money deposited into the account could never be withdrawn, except for a mission. I set up the accounts so that two signatures were needed for withdrawals, mine and the child’s. At first I mandated that the children deposit half their earnings in the bank but I later left it up to them. Sarah was exempt but nevertheless saved a substantial sum with which she was able to tour Europe and later to buy a car.

Was it successful? Our first three missionaries saved their entire mission cost (currently $9,600) plus were able to buy everything they needed for their mission. Our youngest boy is preparing to go on his mission.

3. What have you done with your children to teach them?

Our children probably noticed that we paid our tithes and offerings, that we saved, and that we never paid credit card interest. So a good example is the best teacher. If you have learned sound financial principles then your life teaches your children. They probably heard us talk about a new couch or other item and also heard us decide that we had to save for it. They learned that they may have to wait for their birthday or Christmas to get what they wanted, or to save over an extended period.

We tried all sorts of work schemes. Chores were expected but then some were paid. We never seemed to hit on a formula that worked. For a time we had an allowance that was part free and part earned. When the children got outside jobs I let them keep all their earnings. I wanted the connection between working and earnings to be very strong. Besides, they saved most of their money and a good percentage went into the Black Hole Account.

Was it successful? I would say mixed. We never did get the allowance thing right. However, the children are great at earning a living and can hold down a job.

4. What would you have changed (concerning teaching important financial principles) if you could raise your children again?

When it came to cars my wife and I paid for the running of them and retained ownership. Three of the children now own their own cars. By my calculations it would be very difficult to save for a mission and purchase a car as well as pick up college expenses for the year that some of the boys had before their missions. If they had bought cars then I would have had to pay for their missions. By absorbing the car expense it left the mission and college costs to the children. That would make mission and college more meaningful for them because they contributed substantially. However, I sometimes wonder if I should have had the children get into car ownership earlier.

One thing I would change is having the children contribute to the mission of their older sibling. Once Sarah asked me if she should help with paying for Steven’s mission. I said, “No, your mother and I will take care of it. You save your money.” Wrong answer but there you go.

Was it successful? Yes. As children reach college and mission age this is no time to scale back on your financial commitments to them.

Conclusion

There is a lot more I could write about. What worked for me as a parent may not work for you. I might mention that what we were teaching at home was being reinforced at Church. Many of the principles mentioned here I learned over the pulpit and then taught my children. I very seldom look back and question how I raised my five children. I am just grateful I was given the opportunity to be their father.

How did you learn about finances? What have you taught your children?

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Plague

All I want you to do to begin with is to learn about plague. President J. Reuben Clark, Jr., advised:

“Let us avoid debt as we would avoid a plague; where we are now in debt let us get out of debt; if not today, then tomorrow. Let us straitly and strictly live within our incomes, and save a little.” (Conference Report, Apr. 1937, p. 26.)

After reading this I wondered what the plague was like. Knowing that would give me some measure of how bad debt can be. The Black Death struck in the fourteenth century killing an estimated 75-200 million people worldwide and killed 50% of the European population during a four-year period.

The classic sign of bubonic plague was the appearance of buboes in the groin, the neck and armpits, which oozed pus and bled. These buboes were caused by internal bleeding. Victims underwent damage to the skin and underlying tissue, until they were covered in dark blotches. Most victims died within four to seven days after infection. There was mortality rates of thirty to seventy-five percent and symptoms including fever of 101-105 °F, headaches, painful aching joints, nausea and vomiting, and a general feeling of malaise. Of those who contracted the bubonic plague, 4 out of 5 died within eight days. New research suggests Black Death is lying dormant. (See Wikipedia, Black Death)

In summary, debt is worse than the bubonic plague.

Credit Cards

Plan to never pay interest on credit cards or other high rate loans. Although I use credit cards, I have never paid interest. Not because I obtained a 0% loan but because I always pay off the balance.

Essentials

I have heard this preached over the pulpit for thirty-five years: If you must, borrow only for home, health, and education. Lest you feel alone, I will document some of my follies. In the past I have borrowed for a car and paid it back one or two years ahead of schedule. Now I pay cash for my vehicles. Against my better judgment I once borrowed for a vacation. It took me a long time to repay the loan which taught me better sense. Another time I borrowed to play the stock market. I got a margin call and although I was able to cover it by selling other stock, I liquidated all my remaining stocks and paid off my loans, managing to break even.

Charitable

If you are a Latter-day Saint you know well that you will not make any headway without paying your tithes and offerings. For others, find some money to help those with less. You will feel better and be more willing to sacrifice to pay debts.

Works for Me

The following are rules I use to guide me in my finances that haven’t already been mentioned.

• When I refinanced my mortgage I didn’t add to it more debt, even though my payments would have remained the same.
• When I had money saved that was sufficient to pay off my mortgage, I did so even if though the interest rate on my savings was higher than my mortgage.
• I never co-signed on a loan.
• I view a bargain as no bargain if I don’t need it.
• I never quit a job until I had other employment.
• I pay my bills as soon as they arrive.
• Driving an old rickety Mazda saved me enough money to become a home owner.

Questions

What works for you when it comes to money? Any debt stories? How successful have you been at teaching your children about money and debt?

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