The Blessings of Living in a 'Mental Recession'

By Michelle Singletary
Sunday, July 27, 2008

When Sen. John McCain's campaign co-chairman and top economic adviser, Phil Gramm, said that Americans were suffering from a "mental recession," I got hopping mad.

I fumed because Gramm's flippant comment was so harsh. Hadn't he been reading the constant flow of reports about how bad things are? Hadn't he seen the sullen faces of the folks who lost their homes to foreclosure? I had -- up close and personal.

So it doesn't surprise me that Gramm had to resign from McCain's campaign. The presumptive Republican presidential nominee couldn't afford the liability. He could no longer afford to be advised by someone unsympathetic to the financial storm ripping through America the way Hurricane Dolly tore up south Texas.

But on reflection, I think we should embrace what was an insult to the hundreds of thousands of people in this country who are trying to stretch their dollars to pay for necessities or to send their children to college or to live comfortably in retirement.

Maybe living as if you're in a recession, even when there isn't one, is the answer.

When this economic crisis ends -- and it will -- we all should continue to live our lives every day and every year as if a recession were imminent. It was how I was raised. My grandmother, Big Mama, lived through the Great Depression, the worst of economic times in America. She also lived through the best. But through it all, she remained in a "mental recession."

It was that mind-set that kept her from overspending. It kept her from taking the idiotic advice of people who wanted her to live forever trapped by the chains of debt.

Big Mama preached the gospel of frugality during every economic upswing and downturn.

If you live as though prices will rise drastically tomorrow, you'll watch what you spend today at the grocery store. If you're not sure about the direction of gas prices, you'll be more energy-efficient. You'll buy a car that gets good gas mileage. You'll drive less and slower.

If you live as though you could lose your job tomorrow, you'll spend less than you make. Big Mama worked 25 years for the same hospital as a nursing assistant and was never late to work. Her boss would have been a fool to get rid of one of the hardest-working employees at that hospital. And yet my grandmother planned as if she would be fired at any time during those 25 years. She had enough saved to pay her bills for a while if she ever did lose her job and needed time to find another one.

If you think the way my grandmother did, you would put something -- anything -- away in an emergency fund. If you live as if your job was constantly in jeopardy, you wouldn't see every raise or bonus as a chance to consume more.

If you live in a mental recession, you would reject the advice that there is good debt and bad debt. No, there isn't. There is only debt.

Some debt is necessary. Only a privileged few in this country can buy a home with cash. Still, if you live like you are in the midst of a recession, you see debt as a drag on your finances and mental health. And if you view all debt this way, then you will be very cautious about how much you take on, even to buy a home. You'd adopt the mantra "No debt is good debt."

If you live in a mental recession, you won't view your home as an ATM. You won't extract equity to finance a car or pay college expenses.

You would have more common sense than to listen to advice from financial professionals who urge people -- young and old, rich, middle-class and poor -- to leverage debt to become wealthy.

If you live as if a recession were looming, you wouldn't see credit as an extension of your income. You wouldn't charge anything you couldn't pay off the next month. People who have lived through tough economic times know that the less strain you have on your income from debt payments, the better you can weather a financial storm.

Let me be clear: Don't live in fear. There is a difference between a mental recession and a state of panic. The cure for the latter is to follow two basic principles -- live on less than you make, and don't be a devotee to debt.

It's true. I am living in a mental recession. If you do, too, then you'll also embrace the basic personal-finance principles that will help see you through when a recession hits.

I'm not angry about what Gramm said anymore. He came up with the right phrase for the wrong reason.

· On the air: Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and athttp://www.npr.org.

· By mail: Readers can write to her at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.

· By e-mail:singletarym@washpost.com.

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