Financial Literacy - Smart borrowing
smart spending
Consumers get mixed messages

Small investors do not do as well in the market. They are likely to have poor information, get out later when the market dips and furthermore, the more that small investors go into the market with the intention of taking funds out to live on, the less likely they are to get the kinds of returns that the market has generated in the past.

The reason the market has generated returns that are about double the rate of (the) GDP is because people in the past have not needed to cash these returns in to live on them. If people are going into the stock market with the intention of cashing returns out and having to live on them, then the market is not going to be able to sustain returns better than the growth of the economy -- that's just basic simple arithmetic.

Therefore, I don't think that a lot of little Social Security retirement accounts are likely to do as well as a lot of financial advisers predict that they will do. Individual retirement accounts are not as good a deal, not as stable a deal, as a public pension system. It's likely that people are going to become more reliant and not less reliant in the future on a public pension system and we're going to need to devote more resources, not less resources, to the public pension system.

q_v2.gifThe U.S. national debt is approaching $10 trillion. Is debt that is privately held more meaningful to the average consumer than debt held by the federal and other government agencies? What should be done about this?

a_v2.gifThe debt that matters is the debt that's held outside of the government. Of that, the debt that matters the most is the debt that's held outside the country. A fair amount of the U.S. national debt is held in China. That debt is probably the most worrisome in the sense that it gives the Chinese government a certain amount of leverage over U.S. economic policy. There's a fear that the Chinese could dump this debt and try to trade in their U.S. government bonds for some other investment vehicle and that might have an effect on U.S. interest rates. But generally I don't think the U.S. debt is as big a problem as it is often portrayed to the American people.

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q_v2.gifIs the U.S. economy more robust when personal savings rates are low? If so, how does that dynamic work and who is the winner in that situation?

a_v2.gifIt's not clear to me that the economy is more robust when personal savings rates are low. The U.S. personal savings rate has been failing dramatically over the past generation. One of the reasons for that is income distribution has become so unequal that most Americans can't afford to save anymore. Over the past generation, wage growth and income growth for the typical household has been stagnant or has fallen despite economic growth. So despite the fact that the economy has grown, most Americans have seen their incomes stagnate or fall, and this has been true since about 1979.

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