On Wednesday, while we were attending the first-of-its-kind summit of financial writers and editors at the White House, President Barack Obama made a surprise appearance and shared with us his core personal finance beliefs.
His advice will seem basic, but at a time when the average U.S. household debt is 114% of household disposable income, it's worth reiterating the basics.
Save, and earn interest on those savings
The president recalled the advice he learned from his maternal grandmother, who worked her way from being a secretary to serving as one of the first female vice presidents at the Bank of Hawaii (NYSE: BOH ) . He said, "Save a little bit out of whatever you're earning, and the magic of compound interest applies."
The president also emphasized "spending discipline," indicating that we're emerging from a time when we had a bubble at every level -- governmental, corporate, and consumer. "What applies to the nation as a whole applies to individuals … spend less, save more," Obama said. (See "From the White House: What's Going On With the Economy" for our coverage of economic and policy issues from the summit.)
Investment vs. expenditure
Still, the president was clear to make the distinction that not all spending is wasteful.
President Barack Obama drops by the Personal Finance Online Summit in Room 430 of the Eisenhower Executive Office Building, June 8, 2011. (Official White House Photo by Pete Souza.)
Borrowing for things we don't need is a problem. On the other hand, making smart investments is crucial. On the national level, Obama believes that spending on schools, clean energy, and infrastructure is critical for long-term competitiveness. It remains wise to spend on things that will improve productivity in the long run.
The same is true for Americans at the household level. Education is not cheap, for example, but the president believes it can be an investment in anyone's future.
Obama said he was sympathetic to kids today who are graduating college in a tough economic climate. When he and the First Lady graduated from law school, they had combined debt of $120,000. Still, they were lucky to be entering the workforce with good jobs, and (clearly) that investment paid off for them.
Save. Earn interest on those savings. Be a disciplined saver. Understand the distinction between investment and expenditure. At a time when many Americans are struggling not only with financial hardships but simply understanding basic financial concepts, these four pillars bear repeating, no matter how obvious they may seem.