It’s April 7, 2020 and we are many weeks into the COVID-19 pandemic. One of the most unique elements for me is the feeling that, for the first time in my life, everyone in the whole world is sharing my experience. As large as the globe is, and regardless how much it has shrunk, I cannot think of another time in history when every person on the planet was focused at one time on the same thing.
Though we have been ordered to maintain social distance, with today’s technology, most of us continue our relationships, just as my husband and I have, virtually. Friends have invited us to virtual cocktails and we chat for hours, laughing and worrying, and always including one topic: what lessons will have been learned from the pandemic.
Our friends and the newspapers seem to have one lesson at the top of the list: our country’s source for medical supplies and drugs should not be placed in one foreign basket. Globalization of supply and production has solid economic foundations, but we need to rethink the totality of past decisions and the danger to which these choices have exposed our people.
Another lesson I hope we learn is that JIT, like all other economic theories, has its caveats. I was introduced to JIT (just in time) production in the early 1980s while earning my MBA. This is not the place to include a treatise on its purpose and import. When I think back on my operational studies one of the greatest savings of implementing JIT was the reduction in carrying costs of inventory. Just consider the cost of warehousing all the parts for a Toyota at the manufacturing site versus scheduling the arrival of containers in time to unload the parts right onto assembly lines. Added to a long list of efficiencies in effort and reductions in waste, this huge savings in warehousing made JIT appeal the world over and what had been Japanese became a global practice. That all works just swimmingly until it doesn’t. JIT does not allow for global upheavals; I think we need to consider a hybrid between old world warehousing and today’s JIT.
But there is a third, a very personal lesson, that we can all learn, and that I hope we do learn: the importance of personal saving.
I could sit here at my keyboard and pontificate on the need for and solid reasoning for setting aside a small amount of our weekly earnings into a rainy-day fund – remember that old term? Instead of preaching a gospel that is not new to any of us, I will repeat the essence of some of the comments found in recent newspaper articles noting that the average US citizen cannot put their hands on $400 in an emergency.
For the most part, the newspapers are printing articles specific to the pandemic, politics, local stories, and analysis and opinions on the stock market and investing. One absolute in any event of note is that someone, somewhere at some time must take responsibility – if not for causing a problem, for solving it. While this is a grand opportunity for looking out for your neighbor and those who are vulnerable, this is a time for taking responsibility for oneself.
Right now, we are holding our collective breath to see if the $2.2 trillion federal CARES bill will put some cash into our bank accounts. We are hoping and praying that someone else, anyone else, will take care of our immediate needs because most of us have no personal means to do so.
It is easy to joke about stuffing money under a mattress or tucking it away in a sock, but the fact is, how many of us do that? How many of us have cash in a savings that is tagged: for emergencies only? When did it become okay to live paycheck-to-paycheck?
When I worked in the retail automobile business, we produced huge financial statements each month that included columns of analysis in addition to actual data. One field of information divided the bank balance by the total month’s expenses. The desired result was that each dealership could survive, stay operational, for a minimum of two months. Trust me, that mattered. In the sixteen years in which I was affiliated with the retail automobile business, there were strikes at the factories that dried up the supply of inventory, and there were mechanical catastrophes that in one year caused a 30% dealer attrition at Volkswagen alone. Bad things happen.
You might say, why only require two month’s expenses be available? I will not enter into a debate on the requirement. I will only say, “If every household in America this spring could lay their hands on two month’s living expenses, the outlook for this pandemic would be orders of magnitude different.”
And, I am not pretending to know everything about everyone. Many people work hard and set aside emergency funds – thank goodness. And many people have plenty of resources and don’t look for the government to make up for their shortcomings. BTW – this “federal handout” is not a gift for the most part. We, the citizens and taxpayers of the United States of America, will be handed the bill. If we cannot pay the bill in full, it will be handed to our children and our grandchildren. The Piper will be paid.
These are my thoughts and my wishes – that we all should take responsibility for our welfare and reacquire some wisdom from our ancestors. It wasn’t that many generations ago when maintaining a savings account was taught alongside good manners and right and wrong.
Yes, my husband and I are retired. This pandemic and the concomitant damage to our retirement portfolio has been part of our shared experience. In future posts I will provide details of my portfolio management decisions.
But, since I have expressed my hopes and wishes, I should also share my truths when it comes to savings and taking personal responsibility.
First: I have always taken responsibility for myself and mine (children) as has my husband. I came from an impoverished background and understand what not having feels like. If you would like to read my story, curl up with my memoir Black Raspberries, and you will understand where I’m coming from. I left home at fourteen years old because I had the opportunity to pay my own way through a parochial school in exchange for cleaning house and caring for horses. I never returned to my parents for support.
Second: Even though I knew poverty, and found a much better life as an adult, I didn’t do a good job of saving. I remember during the first few years of marriage, we put my paycheck in the bank and lived off my husband’s. But, like so many other people, we went on to buy a home, have children and do all the things most people do and we failed at setting aside money for an emergency. When we chose to put out children into private schools, and then send them to college, we were hard-pressed to meet those tuition obligations. There were times when our debt exceeded our assets, and there were times when we were frightened at what we had done.
Underlying our thinking all those years, and don’t think we didn’t experience friction around financial decisions, was the knowledge that my husband’s job provided a defined-benefit retirement plan.
Defined benefit retirement plans are a vanishing breed, and they are not free. In order to fund a retirement plan, a company negotiates with the employees, via a labor contract, and adjusts their weekly pay accordingly. Monies that the company pays into a retirement plan for employees are monies that they do NOT put in the paycheck. Like all retirement plans, it is a forced savings plan.
Then – because no good story is without its stark moments, when my husband faced retirement, his company filed bankruptcy and abrogated the pension plan. Without writing a detailed account of the events in 2002, I will just note that there were some retirees who ended up with little to nothing for a pension. My husband, with some moments of anxiety, was made whole over time, and we have received our annuity payment each month.
My point is, though we did a poor job of voluntary savings, we had two things going for us: a “guaranteed” pension for retirement, and we had invested in a home and had paid off the mortgage before we retired. One of the most amazing things about the thirty-seven years my husband was employed, there were no strikes at his airline. That was rare indeed.
So, even though we skated through these past fifty years together and have much to be grateful for, I know, and am willing to share the truth, that we were unwise in our spending habits. The headlines of the papers emphasize how deep is the desire for safety in the face of a great danger, and for those of us who do not experience the worst effects of this dread disease, the other critical factor for our future is how quickly we all return to healthy financial existence.
So, it’s not, “Do as I did, but please, do as I say.”
Cluck! Cluck!