Are we too optimistic?

It may sound like a strange question in these grim times. But it turns out the answer is a resounding yes.

The April edition of Kiplinger’s Personal Finance mentions an eye-opening study about people’s sense of their own savings ability. When a group of people were asked to estimate how much they could save in a far-off future month, they wildly overestimated. Their response was $946. Yet in the month following the study, they saved only $248. And when that future month did roll around, they had saved $123. Ouch.

So what’s going on here?

It seems that human beings are naturally inclined to assume that things will get better. We assume that our lives will improve, whether it’s in love, money or some other area. Because of this inherent optimism, the people in the study were counting on improvements to better their savings ability.

This sense of certainty contributed to the current debt that most Americans face. People buying rampantly knew that they didn’t technically have the money now. But surely they would in the future. They’d get that raise/promotion. Then they could pay it all off.

In essence, Americans hope so fervently for good things to happen, we form our lives around the assumption that they will. It may just be one of our most dangerous traits.

I’m not trying to say that it’s bad to have hope. Hope keeps us going. In personal finance, we have to have hope that we will pay off our debts and/or reach our savings goals. Of course, hope is a good thing.

But that hope is directed at a specific goal. This study seemed to capture the sort of vague optimism, without any real plans on how to achieve one’s ambitions, that many Americans live with.

This blasé certainty is directly linked to many of our current problems. People were sure that the stock market would continue to go up in a never-ending spire. People were sure that any debt they accrued now could be paid down later -- you know, when they had more money. And, perhaps worst of all, people got so used to expecting improvement that, now, just maintaining their standard of living isn't longer enough.

Rather than hoping for good things to come our way, we tend to expect that they will. The difference? Hope implies that the goal is not within reach, that it will take work to achieve. Expectation breeds a sense of entitlement.

Even if things simply stay the same, that is no longer good enough. We’ve promised ourselves an ever-improving life for so long that we’ve come to believe the assurance came from higher up than us. And if our lives don’t get better? We feel angry, cheated.

When that promotion doesn’t come our way, we feel that something has been stolen from us. We feel, really, that we were owed that raise. We tell ourselves that the company owes us for our loyalty and hard work.

But isn’t that what our paychecks are for? When did it become common practice for us to expect rewards for doing our jobs?

That sense of entitlement has become so firmly entrenched that we are now outraged if we cannot perceive a steady growth in standard of living.

When we’re not in the situation, of course, it’s easy to see this sense of smug expectation. But the truth is that we’re all guilty of it. Whether you rationalize a calorie-laden dessert – you’ve been exercising devotedly, you deserve it – or some expensive gadget – you’ve been working so hard, you’ve earned it – pretty much any justification (short of “I can pay for it without credit and I’ve met my self-imposed savings goals”) is tied in to our collective sense of entitlement.

That expectation also contributed to the subprime crisis. So many Americans began to believe that they deserved a house, they forgot to consider whether they could (sustainably) afford one. Or perhaps they feel entitled to the largest one they can afford. Afford, of course, is a short-term definition, not taking into account any future interest rate increases.

Then they needed to furnish the place, what with all that extra space. Kids, being kids, are always begging for the newest toys. And let’s not forget all the cool adult toys (we call them gadgets and electronics to make ourselves feel better) that we have to have, merely because they’re the latest and greatest. (I read recently that, on average, Americans get a new cell phone every 18 months. Horrifying!)

The house, the décor, the toys, the gadgets – all of these things plunked down on credit or with a loan. All without a thought about interest rates that start to adjust after 3 or 5 years. It was simply assumed that the market would continue to allow for easy refinances, that interest rates would stay in the historically low range. Why did we all assume these things would follow this path? Because we needed them to, and so we simply assured ourselves that the future would bend to our convenience.

In this way, our sense of financial optimism is a fatal flaw for our economy. It ends up that we are not just poisoning our own well, but other people’s too. Plenty of people were frugal before frugal was cool. Yet they are stuck in the same awful job market, have the same low-interest CD choices. And, just for a little salt in the wound, their taxes go to programs to bail out people who made irresponsible choices. In essence, they suffer the lows without any of the highs.

Yet, they’re not really sure they could have it any other way. Would they let their fellow Americans go homeless? Jobless? Penniless? Would they let children suffer, quite literally, for the sins of the parents?

A few jaded responses aside, the answer is generally no. Those who were responsible to themselves tend to ultimately feel responsible for others’ suffering, if there is some way to prevent it. (Though they may disagree somewhat on what, exactly, that way is.)

No matter how unfair the situation may seem, most of us wouldn’t begrudge our fellow Americans the help they need. Because, despite the fact that there was plenty of poverty even in the high times of the housing bubble, most of us like to believe that America is a land of opportunity and a land of plenty. We need to believe that our citizens can and should have a good, fair standard of living.

So I guess, in that way, we’re all guilty of a little too much optimism there, too.