The president had just arrived for an impromptu appearance at a conference of personal finance writers, confronting a group of journalists more accustomed to covering the real-life concerns of ordinary people -- retirement savings, managing credit cards, household budgeting -- than the policy fare that usually occupies the Washington press corps. The question appeared to disarm him. It was one he had presumably not prepped for.
Obama paused for a moment, a wistful look crossing his face.
"Don't spend all your money," he said.
"My grandmother worked her way up from being a secretary to a vice president of a regional bank," the president continued. "She was from Kansas, and she had a very straightforward view, which was save a little bit of what you're earning and the magic of compound interest applies."
For Many, Saving Has Become a Losing Strategy
It was the sort of sober-minded advice that seems both timeless and irrefutable, yet it was striking to hear from a president now overseeing an economy that has become dependent upon infusions of cheap credit from the Federal Reserve. The U.S. central bank has kept interest rates at close to zero for more than two years in an effort to spur economic activity. This approach played a key role in preventing the economy from sliding into the abyss following the financial shock in the fall of 2008, according to many economists, yet the benefit has come at the direct expense of savers, whose deposits have been rewarded with returns so small they have generally failed to keep pace with inflation.
As it happens, the steady saving approach was more an aspiration than reality inside the Obama household -- at least in the early years.
"That is something Michelle and I have tried to apply, not always successfully, because we're part of the generation that ended up going to college and taking out a huge amount of debt," Obama said. "I'm very sympathetic to what young people are going through today, because Michelle and I graduated from law school with combined debt of $120,000, and it took us 10 years to pay off."
"It was still a good investment," the president added -- a fitting sentiment for a man who used to make his living as a law professor.
'Spend on Things That increase Wealth'
These days, many students are reevaluating the merits of taking on massive debt in exchange for a university degree. For-profit colleges, which are increasingly raking in federal student loan dollars, are churning out legions of students who prove unable to earn enough in their resulting careers to make their payments. (Then, they learn a post-graduate lesson -- that student loans cannot be discharged in bankruptcy proceedings.) Many law students are finding themselves earning a fraction of what is required to keep pace with their own debts.
So there was something almost quaint about the president's musings on his approach to personal finance: "Spending discipline is important," he said. Who would rise in favor of profligate spending? And yet how much easier is discipline when a household has enough to pay the bills to begin with? This hasn't been a problem in the Obama household of late, where a pair of best-selling books has provided the sort of income about which the vast majority of Americans can only fantasize. For most people, savings comes from more modest and ordinary source -- their paycheck.
These days, of course, paychecks are harder to come by. Generating more of them will entail something other saving on the part of the government, the president asserted, endorsing a strategy of measured borrowing and investing in areas that hold the promise of catalyzing economic growth, from clean energy to education.
This is as true for the nation as it is for households, he suggested, settling on a balance between opportunistic saving and investing in assets of value.
"Our first starter home was a $180,000 condo," Obama recalled, offering a smile-worthy reminiscence for a nation now well-familiar with the concept of being underwater on a mortgage. "That was still a good investment, and we were able to make the payments."
What matters as much as saving, the president concluded, is the quality of spending and investment.
"It remains smart to spend on things that increase wealth," he said. "That's an important distinction that we as a country have to make."