Time for Straight Talk About Money

10/27/2008 9:21 am EST

Focus: MARKETS

Terry Savage

Author, The Savage Truth on Money

The markets are pricing in a global depression. It’s not a word I use lightly. But while most are focused on the stock market, the commodities markets underscore that prediction. Oil prices have fallen from $147 a barrel in mid-summer to $64 at the end of the week. Similarly, corn and soybean and fertilizer prices have been cut in half.

When the American consumer stops shopping, the Chinese worker stops eating meat and chicken! And there’s no doubt that Americans will soon face a recessionary environment that few are prepared to accept.

The last truly deep and lasting recession occurred in 1981-82, when many of today’s workers were still in college. Back then, we had double-digit unemployment as the Federal Reserve pushed the prime rate to 21% to curb inflation. But back then, the savings rate surged to 11.2% as people got the message that the situation was dire. 

This year, we enter recession with a negative savings rate and consumers buried in debt. There is now nearly $1 trillion of consumer debt revolving on credit cards—not the amount charged each month and paid off at the end of the month. Nearly half of those cardholders are making only minimum monthly payments. 

Layoffs are making headlines, and this is just the start as the slowdown rolls through the economy. Even the “see it, charge it” shopper will be forced to recognize she or he has borrowed up to the limit of that credit card—and they can no longer refinance with a home equity loan to clear the decks.

As jobs are lost, we’ll face the next round of “de-leveraging” of America—consumer defaults and bankruptcies. And don’t forget who granted that credit—not your retailer anymore, but the same banks that are trying to work through their mortgage losses.

Because you’re reading this on MoneyShow.com, most of this won’t come as a surprise. But don’t feel superior if you’re not in debt. Those who are drowning may well drag you down with them.

What can you do?  Find someone now—an adult child, your elderly parent, your co-worker, and start talking about money! It’s the first step toward facing the truth.

In America we talk politics and sex without thinking it’s too personal. But we never talk about money issues, the ultimate taboo. If your mom runs out of money or is buried in credit card debt, she’ll turn to you for help. Same thing with that college grad who never took a course in money management but did receive a credit card in the mail. They may even be living in your guest room!

So, as we approach the holiday season when families typically gather, make it a time to talk about money. But don’t wait until Turkey Day to bring up the subject. Start now, and please share your stories—anonymously, if you’d like—about what surprised you when you started talking money with those you love.

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