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Tuesday, June 14, 2011

Old Order Savings and Thrift

According to an NPR story aired after the 2008 financial meltdown, not all financial institutions took a hit following that crisis. Banks in Lancaster County, Pennsylvania, with lots of Old Order Amish customers kept doing just fine.

"We've never lost any money on an Amish deal," noted Hometowne Heritage banker Bill O’Brien in the NPR interview. He explained that Old Order farmers and business people seldom take out loans except for major purchases like building construction or real estate, and pay for most other things by cash or from their savings or checking accounts. They use no credit cards, avoid fancy wardrobes and high tech entertainment centers, shun automobiles and most fuel guzzling farm equipment and are generally known for living a frugal and simple life. No sub prime loans here.

Banker O’Brien noted that even if his bank had wanted to, it could not have “bundled” its mortgages and resold them elsewhere for the easy profits other banks pursued. His Amish holdings wouldn't qualify anyway, he said, because in order for a mortgage to be securitized a home has to have electricity and be covered by traditional insurance. The Amish have chosen to do without electricity, and the primary insurance they have is their commitment to help each other when fellow members have any kind of major property damage or medical expenses.

Meanwhile, too many of us borrow and spend as though there were no tomorrow. The result is our nation experiencing an overall negative savings rate for the first time in American history. We have charged way more than we can afford, spent far more on instant gratification than we’ve been willing to save, and have too often accumulated debts greater than our net worth. We assumed that the value of our investments and real estate could only go up, and that there would always be a larger income and more credit where the last came from.

Those days appear to be over. More than ever we are being denied access to the bountiful buffet of easy, cheap credit and endless consumer goods we’ve been feasting on for so long. And now that it’s time to pay the piper, we find ourselves seriously short of cash.

As more of our collective bills are coming due, average American incomes are falling and unemployment rates are still unacceptably high. And to bail ourselves out and to get our economy back on track, the federal government is about to borrow even more trillions our grandchildren will be burdened with.

Maybe its time to take some lessons from our Amish and Old Order Mennonite neighbors. They, like our grandparents and great-grandparents who experienced hard times and the Great Depression, have learned to get by without expecting the good life to be handed them on a silver platter. They exercise fiscal restraint, wait to buy things until they can afford them, and routinely make and grow many of the things they need.
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