Tuesday, June 10, 2008

Saving, Spending, and Age

Today David Brooks writes about profligate consumption (financed by credit card debt as opposed to savings) by the young and financially unsophisticated.

Meanwhile, Boston University's Larry Kotlikoff writes about profligate consumption (financed by government borrowing) by the old and medically needy.

It is interesting that both perspectives should be so different but also so compelling. Credit card debt has grown rapidly in the past decades, and large increases in housing debt among younger households have driven increases in household indebtedness (Dynan and Kohn, 2007). But Kotlikoff is writing about the potentially far more troublesome pattern of rapidly increasing indebtedness of the U.S. government triggered by current and future entitlement spending --- Medicare, mostly, and also Social Security --- on the elderly.

So it's hard to pin down a bad guy here, though we may want to pinpoint somebody or some group whose actions are mucking things up. I think what we can say is that expanded education about the uses and consequences of public and private debt is probably a very good thing in which to invest. Even if it may require that we borrow some money to do it!