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Financial Advice for the Ages

Excessive spending has created a budget gap that the next generation may have to pay off

Every other Saturday was a big money moment.

My first financial adviser was George W. Wanner, the teller at the old Citizens Savings and Loan, where I had my first savings account. Every two weeks my dad and I would walk into the bank and peer over the counter as Mr. Wanner opened, then emptied, my savings bank, counted the pennies, nickels and dimes, and recorded the deposit in my passbook.

See also: Saving Medicare.

During our visits, he shared his four savings essentials: (1) regular deposits — small steps achieve big goals; (2) compound interest — there's nothing more reliable if you're a saver or more costly for borrowers; (3) lockbox — my bank required a key, which made withdrawals difficult, just as they should be; and (4) balance — deposits should exceed withdrawals. You get in trouble if they don't.

The scale has changed, but not the lesson. As a reporter, I spent years following the money — from scoundrels and scammers on Long Island, to town and county budgeteers, to Washington tax writers and big spenders. That journey included a seat at the Senate Budget Committee hearing on Jan. 25, 2001, when Federal Reserve Chairman Alan Greenspan famously concluded that the federal government faced a huge $5.6 trillion budget surplus over the next decade, and the nation needed a tax cut. Congress leapt at the opportunity. But the lawmakers missed the rest of his message. "Economic relationships," he told them that day, "are different from anything we have considered in recent decades," and the projections could be wrong. His conclusion: Consider a short-circuit for the tax cuts if targets in the surplus trajectory aren't hit.

Eleven years ago, Congress heard the call for tax cuts, but missed the warning about what might result.

No one listened. Instead, we went on an $11.4 trillion spending spree to fight two wars, expand Medicare, finance a sequence of gigantic tax cuts and battle the greatest economic challenge in two generations.

What happened to George Wanner's age of prudence? In a word, plastic. As a nation, we stopped saving, became greedy and put our expenses on a credit card that will be paid off by our kids. Spending became the easier choice, especially after the reassurance by Dick Cheney that "Reagan proved that deficits don't matter." Now we know better. They certainly do matter.

The age of plastic has produced a budget gap that is exceeded only by the chasm between what the public expects from government and the willingness to pay for it. In the words of the head of the nonpartisan Congressional Budget Office, "The United States faces a fundamental disconnect between the services that people expect the government to provide, particularly in the form of benefits for older Americans, and the tax revenues that people are willing to send to the government to finance these services."

The nation is facing a big money moment. Washington lawmakers have now raised the legal borrowing limit — the money had already been spent, after all. But huge financial challenges await. While the lawmakers wrangle, it's worth recalling the warning of George Wanner about balance. Spending is easy. Saving and building up reserves is slow and painful — but necessary.

You may also like: Republican plan for Medicare. >>

Jim Toedtman is editor and vice president of AARP Bulletin.

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