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the Financial Planning Process
PFIN6
Randall S. Billingsley, Lawrence J. Gitman, and Michael D. Joehnk
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Part 3 MANAGING C REDIT
6 Using Credit 144
Appendix
Appendix
Appendix D 427
Appendix E 428 Index
ABOUT THE UTHORS
RANDALL S. BILLING S LEY is a nance professor at Virginia Tech. He received his bachelor’s degree in economics from Texas Tech University and received both an M.S. in economics and a Ph.D. in nance from Texas A&M University. Professor Billingsley holds the Chartered Financial Analyst (CFA), Financial Risk Manager (FRM), and Certi ed Rate of Return Analyst (CRRA) professional designations. An award-winning teacher at the undergraduate and graduate levels, his research, consulting, and teaching focus on investment analysis and issues relevant to practicing nancial advisors. Formerly a vice-president at the Association for Investment Management and Research (now the CFA Institute), Professor Billingsley’s published equity valuation case study of Merck & Company was assigned reading in the CFA curriculum for several years. In 2006, the Wharton School published his book, Understanding Arbitrage: An Intuitive Approach to Financial Analysis. In addition, his research has been published in refereed journals that include the Journal of Portfolio Management, the Journal of Banking and Finance, Financial Management, the Journal of Financial Research, and the Journal of Futures Markets. Professor Billingsley advises the Student-Managed Endowment for Educational Development (SEED) at Virginia Tech, which manages an equity portfolio of about $5 million on behalf of the Virginia Tech Foundation.
Professor Billingsley’s consulting to date has focused on two areas of expertise. First, he has acted extensively as an expert witness on nancial issues. Second, he has taught seminars and published materials that prepare investment professionals for the CFA examinations. This has afforded him the opportunity to explore and discuss the relationships among diverse areas of investment analysis. His consulting endeavors have taken him across the United States and to Canada, Europe, and Asia. A primary goal of Professor Billingsley’s consulting is to apply the ndings of academic nancial research to practical investment decision making and personal nancial planning.
L AW R ENCE J. G ITMAN is an emeritus professor ofnance at San Diego State University. He received his bachelor’s degree from Purdue University, his M.B.A. from the University of Dayton, and his Ph.D. from the University of Cincinnati. Professor Gitman is a proli c textbook author and has more than 50 articles appearing
in Financial Management, The Financial Review, the Journal of Financial Planning, the Journal of Risk and Insurance, the Financial Services Review, the Journal of Financial Research, Financial Practice and Education, the Journal of Financial Education, and other scholarly publications.
His major textbooks include The Future of Business, Sixth Edition, and The Future of Business: The Essentials, Fourth Edition, both of which are co-authored with Carl McDaniel; and Fundamentals of Investing, Twelfth Edition, which is co-authored with Michael D. Joehnk and Scott B. Smart. Gitman and Joehnk also wrote Investment Fundamentals: A Guide to Becoming a Knowledgeable Investor, which was selected as one of 1988’s 10 best personal nance books by Money magazine; Principles of Managerial Finance, Sixth Brief Edition, and Principles of Managerial Finance, Thirteenth Edition, both coauthored with Chad J. Zutter; Foundations of Managerial Finance, Fourth Edition; and Introduction to Finance, co-authored with Jeff Madura.
An active member of numerous professional organizations, Professor Gitman is past president of the Academy of Financial Services, the San Diego Chapter of the Financial Executives Institute, the Midwest Finance Association, and the FMA National Honor Society. In addition, he is a Certi ed Financial Planner® (CFP®). Gitman formerly served as a director on the CFP® Board of Governors, as vice-president– nancial education for the Financial Management Association, and as director of the San Diego MIT Enterprise Forum. Gitman has two grown children and lives with his wife in La Jolla, California, where he is an avid bicyclist.
M ICHAEL D. JOEHNK is an emeritus professor of nance at Arizona State University. In addition to his academic appointments at ASU, Professor Joehnk spent a year (1999) as a visiting professor of nance at the University of Otago in New Zealand. He received his bachelor’s and Ph.D. degrees from the University of Arizona and his M.B.A. from Arizona State University. A Chartered Financial Analyst (CFA), he has served as a member of the Candidate Curriculum Committee and of the Council of Examiners of the Institute of Chartered Financial Analysts. He has also served as a director of the Phoenix Society of Financial Analysts and as secretary/ treasurer of the Western Finance Association, and he was
elected to two terms as a vice-president of the Financial Management Association. Professor Joehnk is the author or co-author of some 50 articles, ve books, and numerous monographs. His articles have appeared in Financial Management, the Journal of Finance, the Journal of Bank Research, the Journal of Portfolio Management, the Journal of Consumer Affairs, the Journal of Financial and Quantitative Analysis, the AAII Journal, the Journal of Financial Research, the Bell Journal of Economics, the Daily Bond Buyer, Financial Planner, and other publications.
In addition to co-authoring several books with Lawrence J. Gitman, Professor Joehnk was the author of a highly
successful paperback trade book, Investing for Safety’s Sake. Dr. Joehnk was also the editor of Institutional Asset Allocation, which was sponsored by the Institute of Chartered Financial Analysts and published by Dow Jones-Irwin. He was a contributor to the Handbook for Fixed Income Securities and to Investing and Risk Management, Volume 1 of the Library of Investment Banking. In addition, he served a six-year term as executive co-editor of the Journal of Financial Research. He and his wife live in Flagstaff, Arizona, where they enjoy hiking and other activities in the nearby mountains and canyons.
In addition to the many individuals who made signi cant contributions to the book by their expertise, classroom experience, guidance, general advice, and reassurance, we also appreciate the students and faculty who used the book and provided valuable feedback, con rming our conviction that a truly teachable personal nancial planning text could be developed.
We are indebted to the academicians and practitioners who have created the body of knowledge contained in this text. We particularly wish to thank several people who gave the most signi cant help in developing and revising it. They include Eric Johnson, ChFC, CLU, LTCP, of StateFarm for his helpful insights on insurance products and planning; Professor Sam Hicks, CPA, of Virginia Tech, for his thorough review of the entire book; Professor Hongbok Lee, of Western Illinois University, for helpful observations, and Thomas C. Via Jr., CLU, of Leonard L. Brown Agency for his help on life and property insurance issues.
The editorial staff at Cengage Learning has been most helpful in our endeavors. We particularly wish to thank Steven E. Joos, the former Product Director, 4LTR Press; Laura Redden, Product Manager; Tricia Hempel, Content/Media Developer; Lauren Dame, Product Assistant, and Nadia Saloom, Content Project Manager.
Finally, our wives – Bonnie, Robin, and Charlene –have provided needed support during the writing of this book. We are forever grateful to them.
Randall S. Billingsley, FRM, CFA Virginia Tech
Lawrence J. Gitman, CFP® San Diego State University
Michael D. Joehnk, CFA Arizona State University
1 Understanding the Financial Planning Process
LEARNING OBJ E CT I V E S
After studying this chapter, you will be able to…
LO1 Identify the benefits of using personal financial planning techniques to manage your finances.
LO2 Describe the personal financial planning process and define your goals.
LO3 Explain the life cycle of financial plans, their role in achieving your financial goals, how to deal with special planning concerns, and the use of professional financial planners.
LO4 Examine the economic environment’s influence on personal financial planning.
LO5 Evaluate the impact of age, education, and geographic location on personal income.
LO6 Understand the importance of career choices and their relationship to personal financial planning.
After finishing this chapter go to PAGE 26 for STUDY TOOLS
How Will This Affect Me?
The heart of financial planning is making sure your values line up with how you spend and save. That means knowing where you are financially and planning on how to get where you want to be in the future no matter what life throws at you. For example, how should your plan handle the projection that Social Security costs may exceed revenues by 2037? And what if the government decides to raise marginal tax rates to help cover the federal deficit? An informed financial plan should reflect such uncertainties and more. This chapter describes the financial planning process and explains its context. Topics include how financial plans change to accommodate your current stage in life and the role that financial planners can play in helping you achieve your objectives. After reading this chapter you will have a good perspective on how to organize your overall personal financial plan.
1-1 THE REWARDS OF SOUND FINANCIAL PLANNING
LO1 What does living “the good life” mean to you? Does it mean having the flexibility to pursue your dreams and goals in life? Is it owning a home in a certain part of town, starting a company, being debt free, driving a particular type of car, taking luxury vacations, or having a large investment portfolio? Today’s complex, fast-paced world offers a bewildering array of choices. Rapidly changing economic, political, technological, and social environments make it increasingly difficult to develop solid financial strategies that will improve your lifestyle consistently. Moreover, the financial crisis of 2008–2009 dramatizes the need to plan for financial contingencies. No matter how you define it, the good life requires sound planning to turn financial goals into reality.
The best way to achieve financial objectives is through personal financial planning, which helps define your financial goals and develop appropriate strategies to reach them. And being financially self-aware provides more insight into the range of available financial choices and their trade-offs. Your comfortable retirement should not depend solely on employee or government benefits—such as steady salary increases or adequate funding from employer-paid pensions or Social Security. Creating flexible plans and regularly revising them is the key to building a sound financial future.
Successful financial planning also brings rewards that include greater flexibility, an improved standard of living, wiser spending habits, and increased wealth. Of course, planning alone does not guarantee success; but having an effective, consistent plan can help you use your resources wisely. Careful financial planning
Exhibit 1.1
Organizational Planning Model
T his text emphasizes making financial decisions regarding assets, credit, insurance, investments, and retirement and estates.
increases the chance that your financial goals will be achieved and that you will have sufficient flexibility to handle such contingencies as illness, job loss, and even financial crises.
The goal of this book is to remove the mystery from the personal financial planning process and replace it with the tools you need to take charge of your personal finances. To organize this process, the text is divided into six parts, as follows:
▶ Part 1: Foundations of Financial Planning
▶ Part 2: Managing Basic Assets
▶ Part 3: Managing Credit
▶ Part 4: Managing Insurance Needs
▶ Part 5: Managing Investments
▶ Part 6: Retirement and Estate Planning
Each part explains a different aspect of personal financial planning, as shown in Exhibit 1.1. This organizational scheme revolves around financial decision making that’s firmly based on an operational set of financial plans. We believe that sound financial planning enables individuals to make decisions that will yield their desired results.
1-1a Improving Your Standard of Living
With personal financial planning we learn to acquire, use, and control our financial resources more efficiently. It allows us to gain more enjoyment from our
income and thus to improve our standard of living—the necessities, comforts, and luxuries we have or desire.
Our quality of life is closely tied to our standard of living. Although other factors—geographic location, public facilities, local cost of living, pollution, traffic, and population density—also affect quality of life, wealth is commonly viewed as a key determinant. Material items such as a house, car, and clothing as well as money available for health care, education, art, music, travel, and entertainment all contribute to our quality of life. Of course, many so-called wealthy people live “plain” lives, choosing to save, invest, or support philanthropic organizations with their money rather than indulge in luxuries.
One trend profoundly affecting our standard of living is the two-income family. What was relatively rare in the early 1970s has become commonplace today, and the incomes of millions of families have risen sharply as a result. About 75 percent of married adults say that they and their mate share all their money. Two incomes not only buy more, but they also require greater responsibility to manage the money wisely.
1-1b Spending Money Wisely
Using money wisely is a major benefit of financial planning. Whatever your income, you can either spend it now or save some of it for the future. Determining your current and future spending patterns is an important part of personal money management. The goal, of course, is to spend your money so that you get the most satisfaction from each dollar.
Current Needs Your current spending level is based on the necessities of life and your average propensity to consume, which is the percentage of each dollar of income, on average, that is spent for current needs rather than savings. A minimum level of spending would allow you to obtain only the necessities of life: food, clothing, and shelter. Although the quantity and type of food, clothing, and shelter purchased may differ among individuals depending on their wealth, we all need these items to survive.
Some people with high average propensi ties to consume earn low incomes and spend a large portion of it on basic necessities. On the other hand, individuals earning large amounts quite often have low average propensities to consume, in part because the cost of necessities represents only a small portion of their income.
-
Still, two people with significantly different incomes could have the same average propensity to consume because of differences in their standard of living. The person making more money may believe it is essential to buy better-quality items or more items and will thus, on average, spend the same percentage of each dollar of income as the person making far less.
Financial Planning Tips
Success is most likely if your goals are:
Specific: What do I want to achieve? What is required of me, and what are my constraints?
Measurable: How much money is needed? How will I know if I am succeeding?
Attainable: How can I do this? Is this consistent with my other financial goals?
Realistic: Am I willing and able to do this?
Timely: What is my target date? What short-term goals must be achieved along the way to achieve my longer-term goals?
Inspired by Paul J. Meyers, Attitude Is Everything, The Meyer Resource Group, 2003.
Future Needs A carefully developed financial plan should set aside a portion of current income for future spending. Placing these funds in various savings and investment vehicles allows you to earn a return on your funds until you need them. For example, you may want to build up a retirement fund to maintain a desirable standard of living in your later years. Instead of spending the money now, you defer actual spending until the future when you retire. Nearly 35 percent of Americans say retirement planning is their most pressing financial concern. Other examples of deferred spending include saving for a child’s education, a primary residence or vacation home, a major acquisition (such as a car or home entertainment center), or even a vacation. The portion of current income we commit to future needs depends on how much we earn and also on our average propensity to consume. Many affluent Americans say they need at least $5 million to feel rich. And more generally, most people say that it would take about twice their current net worth to feel wealthy. The more we earn and the less we devote to current spending, the more we can commit to meeting future needs. Regardless of income or wealth, some portion of current income should be set aside regularly for future use. Doing so creates good saving habits and provides for your future needs.
1-1c Accumulating Wealth
In addition to using current income to pay for everyday living expenses, we often spend it to acquire assets such as cars, a home, or stocks and bonds. Our assets largely determine how wealthy we are. Personal financial planning plays a critical role in the accumulation of wealth by directing our financial resources to the most productive areas.
One’s wealth is the net total value of all the items that the individual owns. Wealth consists of financial and tangible assets. Financial assets are intangible, paper assets such as savings accounts and securities (stocks, bonds, mutual funds, and so forth). They are earning assets that are
average propensity to consume the percentage of each dollar of income, on average, that a person spends for current needs rather than savings
wealth the total value of all items owned by an individual, such as savings accounts, stocks, bonds, home, and automobiles
financial assets intangible assets, such as savings accounts and securities, that are acquired for some promised future return
1.2
The verage merican, Financially Speaking
T his financial snapshot of the “average American” gives you an idea of where you stand in terms of income, net worth, and other measures. It should help you set some goals for the future.
What Do We Earn? (median)
All families
What Are We Worth? (median)
All families
Home Ownership (median)
How Much Savings Do We Have? (median)
investment funds (excluding money market)
$46,700
$81,200
Source: Adapted from Jesse Bricker, Lisa J. Dettling, Alice Henriques, Joanne W. Hsu, Kevin B. Moore, John Sabelhaus, Jeffrey Thompson, and Richard A.Windle, “Changes in U.S. Family Finances from 2010 to 2013:
Evidence from the Survey of Consumer Finances,” Board of Governors of the Federal Reserve System, Washington, D.C., October 24, 2014. Data is for 2013. http://www.federalreserve.gov/pubs/bulletin/2014/pdf /scf14.pdf, Tables 1–4, accessed September 2016.
held for their expected future returns. Tangible assets, in contrast, are physical assets such as real estate and automobiles. These assets can be held for either consumption (e.g., your home, car, artwork, or jewelry) or investment purposes (e.g., a duplex purchased for rental income). The goal of most people is to accumulate as much wealth as possible while maintaining current consumption at a level that provides the desired standard of living. To see how you compare with the typical American in financial terms, check out the statistics in Exhibit 1.2.
Everyone—including recent college graduates, young married couples, and others—needs to develop a personal financial plan.
enough, you need personal financial planning. If you have enough money, planning can help you spend and invest it wisely. If your income seems inadequate, taking steps to plan your financial activities will lead to an improved lifestyle. Personal financial planning is a systematic process that considers the important elements of an individual’s financial affairs and is aimed at fulfilling his or her financial goals.
1-2 THE PERSONAL FINANCIAL
PLANNING PROCESS
tangible assets physical assets, such as real estate and automobiles, that can be held for either consumption or investment purposes
personal financial planning a systematic process that considers important elements of an individual’s financial affairs in order to fulfill financial goals
LO2 Many people mistakenly assume that personal financial planning is only for the wealthy. However, nothing could be further from the truth. Whether you have a lot of money or not
Everyone—including recent college graduates, young married couples, and others—needs to develop a personal financial plan. Knowing what you need to accomplish financially, and how you intend to do it, gives you an edge over someone who merely reacts to financial events as they unfold. Just think of the example provided by the financial crisis of 2008–2009. Do you think that a financial plan would have helped in weathering the financial storm?
1-2a Steps in the Financial Planning Process
The financial planning process translates personal financial goals into specific financial plans, which then
The Six-Step Financial Planning Process
The financial planning process translates personal financial goals into specific financial plans and strategies, implements them, and then uses budgets and financial statements to monitor, evaluate, and revise plans and strategies as needed. This process typically involves the six steps shown in sequence here.
1. Define financial goals.
2. Develop financial plans and strategies to achieve goals.
3. Implement financial plans and strategies.
4. Periodically develop and implement budgets to monitor and control progress toward goals
5. Use financial statements to evaluate results of plans and budgets, taking corrective action as required.
6. Redefine goals and revise plans and strategies as personal circumstances change.
help you implement those goals through financial strategies. The financial planning process involves the six steps shown in Exhibit 1.3.
You start with financial goals, formulate and implement financial plans and strategies to reach them, monitor and control progress toward goals through budgets, and use financial statements to evaluate the plan and budget results. This leads you back to redefining your goals so that they better meet your current needs, and to revising your financial plans and strategies accordingly.
Let’s now look at how goal setting fits into the planning process. In Chapters 2 and 3, we’ll consider other information essential to creating your financial plans: personal financial statements, budgets, and taxes.
1-2b Defining Your Financial Goals
Financial goals are the results that an individual wants to attain. Examples include buying a home, building a college fund, and achieving financial independence. What are your financial goals? Have you spelled them out? It’s impossible to effectively manage your financial resources without financial goals. We need to know where we are going, in a financial sense, to
effectively meet the major financial events in our lives. Your financial goals or preferences must be stated in monetary terms because money and the satisfaction it can bring are an integral part of financial planning. Exhibit 1.3
financial goals results that an individual wants to attain, such as buying a home, building a college fund, or achieving financial independence
Patpitchaya/ S hutterstock.com
Practicing Financial Self-Awareness
Are you aware of your financial behavior, its causes, and its consequences? For example, are you routinely relying too heavily on your credit card? Are you saving enough to buy a new car or to fund your retirement? And the bottom line: Are you continuing the same financial behavior you have in the past and yet expecting different results?
The first decisive step in taking control of your life is to be aware of what you’re thinking, feeling, and doing. Be financially self-aware: observe your own thoughts, feelings, and behavior concerning your finances. Take notes on things that affect how you feel, and what you do about financial decisions. Watch yourself, and be honest about your feelings concerning money and your future.
Then ask yourself two critically important questions:
● Is the way I spend money consistent with what I believe? Financial planning that works taking the time to develop a plan that purposely lines up your values and your use of money.
● Have I clearly stated the financial goals that are important to me and, if so, what am I doing today to make sure I achieve them? The heart of financial planning is determining where you are today and where you want to be in the future. This implies the need for a financial plan: limited resources sometimes bring painful trade-offs.
Source: Adapted from Carl Richards, “Practicing Radical Self-Awareness,” Behaviorgap.com, http://us2.campaign-archive1.com/?u=23ce2ac179e81 58f7583c4e3f&id=86f42577bc&e=b50e826a9e, accessed September 2016.
The Role of Money About 75 percent of Americans believe that money is freedom. Money is the medium of exchange used to measure value in financial transactions. It would be difficult to set specific personal financial goals and to measure progress toward achieving them without the standard unit of exchange provided by the dollar. Money, as we know it today, is the key consideration in establishing financial goals. Yet it’s not money, as such, that most people want. Rather, we want the utility , which is the amount of satisfaction received from buying quantities of goods and services of a given quality, that money makes possible.
cost when evaluating alternative qualities of life, spending patterns, and forms of wealth accumulation.
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money the medium of exchange used as a measure of value in financial transactions
utility the amount of satisfaction received from purchasing certain types or quantities of goods and services
People may choose one item over another because of a special feature that provides additional utility. For example, some people will pay more for a car with satellite radio than one with only an audio player. The added utility may result from the actual usefulness of the special feature, from the “status” it’s expected to provide, or from both. Regardless, people receive varying levels of satisfaction from similar items, and their satisfaction isn’t necessarily directly related to the cost of the items. We, therefore, need to consider utility along with
The Psychology of Money Money and its utility are not only economic concepts; they’re also closely linked to the psychological concepts of values, emotion, and personality. Your personal value system—the important ideals and beliefs that guide your life—will also shape your attitude toward money and wealth
accumulation. If you place a high value on family life, you may choose a career that offers regular hours and less stress or choose an employer who offers flextime rather than a higher-paying position that requires travel and lots of overtime.
You may have plenty of money but choose to live frugally and do things yourself rather than hire someone to do them for you. Or you may spend a high proportion of your current income on acquiring luxuries. Financial goals and decisions should be consistent with your personal values. You can formulate financial plans that provide the greatest personal satisfaction and quality of life by identifying your values.
Money is an important motivator of personal behavior because it has a strong effect on self-image. Each person’s unique personality and emotional makeup determine the importance and role of money in his or her life. You should become aware of your own attitudes toward money because they are the basis of your “money personality” and money management style.
Some questions to ask yourself include: How important is money to me? Why? What types of spending give me satisfaction? Am I a risk taker? Do I need large financial reserves to feel secure? Knowing the answers to these questions is a prerequisite for developing realistic and effective financial goals and plans. Trade-offs between current and future benefits are strongly affected by values, emotions, and personality. Effective financial plans are both economically and psychologically sound. They must not only consider your wants, needs, and financial resources but must also realistically reflect your personality and emotional reactions to money.
1-2c Money and Relationships
The average couple spends between 250 and 700 hours planning their wedding. While most couples spend less than $10,000 on the big day, the average cost has risen to more than $32,000, depending on where they live. But with all the hoopla surrounding the wedding day, many couples overlook one of the most important aspects of marriage: financial compatibility. Money can be one of the most emotional issues
in any relationship, including that with a partner, parents, or children. Most people are uncomfortable talking about money matters and avoid such discussions, even with their partners. However, differing opinions on how to spend money may threaten the stability of a marriage or cause arguments between parents and children. Learning to communicate with your partner about money is a critical step in developing effective financial plans.
The best way to resolve money disputes is to be aware of your partner’s financial style, consistently communicate openly, and be willing to compromise. It’s highly unlikely that you can change your partner’s style, but you can work out your differences. Financial planning is an especially important part of the conflict resolution process. You need to work together to develop your financial goals.
1-2d Types of Financial Goals
Financial goals cover a wide range of financial aspirations: controlling living expenses, meeting retirement needs, setting up a savings and investment program, and minimizing your taxes. Other important financial goals include having enough money to live as well as possible, being financially independent, sending children to college, and providing for retirement.
Financial goals should be defined as specifically as possible. Saying that you want to save money next year is not a specific goal. How much do you want to save, and for what purpose? A goal such as “save
Financial Planning Tips
COMMON MISCONCEPTIONS ABOUT FINANCIAL PLANNING
● A professional financial planner is an unnecessary expense. The answer depends on you. A lot of good financial planning can be done on your own. But honestly ask yourself: Do I have the discipline, time, and financial experience to manage these complicated tasks effectively and confidently? If the answer is no, see a financial planner to get a realistic idea of the planning process.
● A little credit card debt is just fine. Define “a little.” A modest amount of credit card debt is OK. The problem is that for all too many people, “a little” leads to a lot. As discussed in Part 3 of this book, “Managing Credit,” credit card debt is often one of the biggest problems in managing your personal finances. Just consider the high interest rates of credit cards and how easy it is to build up a big balance.
● I don’t need a budget because I have a general idea of what I earn and spend. There is a natural
tendency to overspend because expenses are easy to underestimate without a formal budget. And if you spend first and only save what’s left over, the probability of achieving your financial goals is much lower. Sticking to a budget is the key.
● Retirement is a lifetime away. While that may be true, that doesn’t justify focusing only on shortterm goals like coming up with the down payment on a house. When retirement is a “lifetime away,” that’s the time to exploit the compounding of returns over a long period of time by taking full advantage of retirement investments in your employer’s 401(k) plan and in IRAs. An early start can put you well ahead.
Source: Adapted from Kimberly J. Howard, CFP®, CRPC, “Financial Fiascos Every Young Couple with Debts Should Avoid,” NAPFA Planning Perspectives , volume 6, issue 5, Sept/Oct 2011, www .NAPFA.org, accessed September 2016.
10 percent of my take-home pay each month to start an investment program” states clearly what you want to do and why.
Because they are the basis of your financial plans, your goals should be realistic and attainable. If you set a savings goal too high—for example, 25 percent of your take-home pay when your basic living expenses already account for 85 percent of it—then your goal is unattainable and there’s no way to meet it. But if savings goals are set too low, you may not accumulate enough for a meaningful investment program. If your goals are unrealistic, they’ll put the integrity of your financial plan at risk and be a source of ongoing financial frustration.
goal dates target dates in the future when certain financial objectives are expected to be completed
It’s important to involve your immediate family in the goal-setting process. When family members “buy into” the goals, it reduces the likelihood of future conflicts and improves the family’s chances for financial success. After defining and approving your goals, you can prepare appropriate cash
budgets. Finally, you should assign priorities and a time frame to financial goals. Are they short-term goals for the next year, or are they intermediate or long-term goals that will not be achieved for many more years? For example, saving for a vacation might be a medium-priority, short-term goal, whereas buying a larger home may be a high-priority, intermediate goal and purchasing a vacation home a low-priority, long-term goal. Normally, long-term financial goals are set first, followed by a series of corresponding short-term and intermediate goals.
1-2e Putting Target Dates on Financial Goals
Financial goals are most effective when they are set with goal dates. Goal dates are target points in the future when you expect to have achieved or completed certain financial objectives. They may serve as progress checkpoints toward some longer-term financial goals and/or as deadlines for others.
EXAMPLE: Target Dates for Financial Goals
Austin and Clara Martin are both 28 and have been married for one year. They have set financial goals of buying a boat for $3,000 in 2019, accumulate a net worth of $10,000 by 2023, and accumulate a net worth of $50,000 by 2031.
Long-Term Goals Long-term financial goals should indicate wants and desires for a period covering about 6 years out to the next 30 or 40 years. Although it’s difficult to pinpoint exactly what you will want 30 years from now, it’s useful to establish some tentative longterm financial goals. However, you should recognize that long-term goals will change over time and that you’ll need to revise them accordingly. If the goals seem too ambitious, you’ll want to make them more realistic. If they’re too conservative, you’ll want to adjust them to a level that encourages you to make financially responsible decisions rather than squander surplus funds.
Short-Term and Intermediate Goals Short-term financial goals are set each year and cover a 12-month period. They include making substantial, regular contributions to savings or investments in order to accumulate your desired net worth. Intermediate goals bridge the gap between short- and long-term goals. And of course, both intermediate and short-term goals should be consistent with your long-term goals.
Short-term goals become the key input for the cash budget, a tool used to plan for short-term income and expenses. To define your short-term goals, consider your immediate goals, expected income for the year, and
DO IT NOW: Start a List of Your Financial Goals
Yogi Berra summed it up: “If you don’t know where you’re going, you might not get there.” And so it is with your financial goals. Pick up some paper now and start a list of your financial goals. Maybe it’s as simple as saving $25 by the end of the month or as lofty as saving $200,000 for retirement by the time you’re 50. You’ll never achieve your goals if you don’t know what they are, much less know whether they’re realistic. Go ahead and dream. List your goals (short-term, intermediate, and long-term) and start laying out how you’ll get there. You can do it now
long-term goals. Short-term planning should also include establishing an emergency fund with at least six months’ worth of income. This special savings account serves as a safety reserve in case of financial emergencies such as a temporary loss of income.
Unless you attain your short-term goals, you probably won’t achieve your intermediate or long-term goals. It’s tempting to let the desire to spend now take priority over the need to save for the future. But by making some short-term sacrifices now, you’re more likely to have a comfortable future. Worksheet 1.1 is a convenient way to summarize your personal financial goals. It groups them by time frame (short term, intermediate, or long term) and lists a priority for each goal (high, medium, or low), a target date to reach the goal, and an estimated cost.
We have filled out the form showing the goals that Silas and Emily Nelson set in December 2017. The Nelsons were married in 2013, own a condominium in a Midwestern suburb, and have no children. Because Silas and Emily are 28 and 26 years old, respectively, they have set their longest-term financial goal 33 years from now, when they want to retire. Silas has just completed his fifth year as a marketing representative for a large pharmaceutical company. Emily, a former elementary school teacher, finished her MBA in May 2016 and began working at a local advertising agency. Silas and Emily love to travel and ski. They plan to start a family in a few years, but for now they want to develop some degree of financial stability and independence. Their short-term goals include purchasing assets (clothes, furniture, and car), reducing debt, reviewing insurance, increasing savings, and planning for retirement.
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Set financial goals carefully and realistically, because they form the basis for your personal financial plans. Each goal should be clearly defined and have a priority, time frame, and cost estimate.
1-3 FROM GOALS TO PLANS: A LIFETIME OF PLANNING
LO3 How will you achieve the financial goals you set for yourself? The answer, of course, lies in the financial plans you establish. Financial plans provide the road map for achieving your financial goals. The six-step financial planning process (introduced in Exhibit 1.3) results in separate yet interrelated components covering all the important financial elements in your life.
Some elements deal with the more immediate aspects of money management, such as preparing a budget to help manage spending. Others focus on acquiring major assets, controlling borrowing, re ducing financial risk, providing for emergency funds and future wealth accumulation, taking advantage of and managing employer-sponsored benefits, deferring and minimizing taxes, providing for financial security when you stop working, and ensuring an orderly and cost-effective transfer of assets to your heirs.
In addition to discussing your financial goals and attitudes toward money with your partner, you must al locate responsibility for money man agement tasks and decisions. Many couples make major decisions jointly and divide routine financial decision making on the basis of expertise and interest. Others believe it is important for their entire family to work together as a team to manage the family finances. They hold family financial meetings once every few months to help their children understand how the household money is spent.
1-3a The Life Cycle of Financial Plans
45, or 65. Some changes—a new job, marriage, children, moving to a new area—may be part of your original plan. More often than not, you’ll face unexpected “financial shocks” during your life: loss of a job, a car accident, divorce or death of a spouse, a long illness, or the need to support adult children or aging parents. With careful planning, you can get through tough times and prosper in good times. You need to plan ahead and take steps to weather life’s financial storms successfully. For example, setting up an emergency fund or reducing monthly expenses will help protect you and your family financially if a setback occurs.
As we move from childhood to retirement age, we go through different life stages. Exhibit 1.4 illustrates the various components of a typical personal financial planning life cycle as they relate to these different life stages. While the exhibit shows more detail, the life cycle involves three general stages: 1) wealth accumulation, 2) wealth preservation, and 3) wealth transfer. This exhibit presents the organizing framework of the entire financial planning process. We will refer to it throughout the book—and we suggest you do so for the rest of your life.
As we pass from one stage of maturation to the next, our patterns of income, home ownership, and debt also change. From early childhood, when we rely on our parents for support, to early adulthood, when we hold our first jobs and start our families, we can see a noticeable change in income patterns. For example, those in the pre-retirement 45–64 age group tend to have higher income than those younger than age 45. Thus, as our emphasis in life changes, so do the kinds of financial plans we need to pursue.
Financial planning is a dynamic process. As you move through different stages of your life, your needs and goals will change. Yet certain financial goals are important regardless of age. Having extra resources to fall back on in an economic downturn or period of unemployment should be a priority whether you are 25,
You need to plan ahead and take steps to weather life’s financial storms successfully.
New career strategies—planned and unplanned job changes—may require that financial plans be revised. Many young people focus on their careers and building a financial base before marrying and having children. The families of women who interrupt their careers to stay home with their children, whether for six months or six years, will experience periods of reduced income. A divorce, a spouse’s death, or remarriage can also drastically change your financial circumstances. Many people in their 30s, 40s, and 50s find themselves in the “sandwich generation”: supporting their elderly parents while
The Personal Financial Planning Life C
As you move through life and your income and living cost patterns change, you’ll typically have to pursue a variety of financial plans. For instance, after graduating from college, your focus likely will be on buying a car and a house, and you’ll be concerned about health and automobile insurance to protect against loss.
still raising their own children and paying for college. And some people must cope with reduced income due to jobs lost because of corporate downsizing or early retirement.
1-3b Plans to Achieve Your Financial Goals
Financial goals can range from short-term goals, such as saving for a car, to long-term goals, such as saving enough to start your own business. Reaching your particular goals requires different types of financial planning.
Asset Acquisition Planning
One of the first categories of financial planning we typically encounter is asset acquisition. We accumulate assets—things we own— throughout our lives. These include liquid assets (cash, savings accounts, and money market funds) used to pay everyday expenses, investments (stocks, bonds, and mutual funds) acquired to earn a return on our money, personal property (movable property such as automobiles, household furnishings, appliances, clothing, jewelry, home electronics, and similar items), and real property (immovable property; land and anything fixed to it, such
as a house). Chapters 4 and 5 focus on important considerations for managing liquid assets and other major assets such as automobiles and housing.
Liability and Insurance Planning Another category of financial planning is liability planning. A liability is something we owe, which is measured by the amount of debt we incur. We create liabilities by borrowing money. By the time most of us graduate from college, we have debts of some sort or another—examples include education loans, car loans, credit card balances, and so on. Our borrowing needs typically increase as we acquire assets like a home, furnishings, and appliances. Whatever the source of credit, such transactions have one thing in common: the debt must be repaid at some future time. How we manage our debt burden is just as important as how we manage our assets. Managing credit effectively requires careful planning, which is covered in Chapters 6 and 7.
Obtaining adequate insurance coverage is also essential. Like borrowing money, obtaining insurance is often introduced relatively early in our life cycle (usually early in the family formation stage). Insurance is a way to reduce
financial risk and protect both income (life, health, and disability insurance) and assets (property and liability insurance). Most consumers regard insurance as absolutely essential—and for good reason. One serious illness or accident can wipe out everything you have accumulated over many years of hard work. But having more insurance than necessary can be costly too. We’ll examine how to manage your insurance needs in Chapters 8, 9, and 10.
Savings and Investment Planning As your income begins to increase, so does the importance of saving and
Exhibit 1.5
investment planning. Initially, people save to establish an emergency fund for meeting unexpected expenses. Eventually, however, they devote greater attention to investing excess income as a means of accumulating wealth, either for major expenditures, such as a child’s college education, or for retirement. Individuals build wealth through savings and subsequently making various investments: common or preferred stocks, government or corporate bonds, mutual funds, real estate, and so on. The higher the returns on the investment of excess funds, the greater the wealth they accumulate.
Exhibit 1.5 shows the impact of two different rates of return on accumulated wealth. The graph shows that if you had $1,000 today and could keep it invested at 4 percent, then you would accumulate a considerable sum of money over time. For example, at the end of 40 years, you’d have $4,801 from your original $1,000. Earning a higher rate of return provides even greater rewards. Some might assume that earning, say, only 2 percentage points more (e.g., 6 percent rather than 4 percent) would not matter much. But it certainly would! Observe that if you could earn 6 percent over the 40 years, then you’d accumulate $10,286, which is more than twice as much as you’d accumulate at 4 percent. This powerful observation is important to
How a $1,000 Investment Grows over Time
Four or 6 percent: How big a deal is a 2-percent difference? T he deal is more than twice the money over a 40-year period! T hrough the power of compound interest, a higher return means dramatically more money as time goes on.
keep in mind when comparing competing investment and savings alternatives.
As we’ll explore in Part 5 on managing investments, seemingly small differences in various investment management fees can also translate into significant differences in net investment returns over long periods of time. The length of time you keep your money invested is just as important as the rate of return you earn on your investments. You can accumulate more than twice as much capital by investing for 40 rather than 30 years with either rate of return (4 percent or 6 percent). This is the magic of compound interest, which explains why it’s so important to create strong savings and investment habits early in life. We’ll examine compounding more fully in Chapter 2, savings in Chapter 4, and investments in Chapters 11, 12, and 13.
use various aspects of the tax code (such as depreciation expenses) to legitimately reduce an investor’s tax liability. Tax planning considers all these factors and more. It involves looking at your current and projected earnings and then developing strategies that will defer and minimize taxes. Tax plans are closely tied to investment plans and will often specify certain investment strategies. Although tax planning is most common among individuals with high incomes, people with lower incomes can also obtain sizable savings. We’ll examine taxes and tax planning in Chapter 3.
Employee Benefit Planning Your employer may offer a wide variety of employee benefit plans, especially if you work for a large firm. These could include life, health, and disability insurance; tuition reimbursement programs for continuing education; pension, profitsharing, and 401(k) retirement plans; flexible spending accounts for child care and health care expenses; sick leave, personal time, and vacation days; and other miscellaneous benefits such as employee discounts and subsidized cafeterias or parking.
Managing your employee benefit plans and coordinating them with your other plans is an important part of the overall financial planning process. Especially in today’s volatile labor market, you can no longer assume that you’ll be working at the same company for many years. If you change jobs, your new company may not offer the same benefits. So your personal financial plans should include contingency plans to replace employer-provided benefits as required. We’ll discuss employee benefits in greater detail in this chapter under Special Planning Concerns and in Chapters 2 (planning); 3 (taxes); 8, 9, and 10 (insurance); and 14 (retirement).
Tax Planning Despite all the talk about tax reform, our tax code remains highly complex. Income can be taxed as active (ordinary), portfolio (investment), passive, taxfree, or tax-deferred. Then there are tax shelters, which
Retirement and Estate
Planning While you’re still working, you should be managing your finances to attain those goals you feel are important after you retire. These might include maintaining your standard of living, extensive travel, visiting children, frequent dining at better restaurants, and perhaps a vacation home or boat. Retirement planning should begin long before you retire.
Most people don’t start thinking about retirement until well into their 40s or 50s. This is unfortunate, because it usually results in a substantially reduced level of retirement income. The sooner you start, the better off you’ll be. Take, for instance, the traditional IRA (individual retirement account), whereby certain wage earners were allowed to invest up to $6,500 per year in 2016. We’ll look at IRAs and other aspects of retirement planning in Chapter 14.
EXAMPLE: The Sooner You Start an IRA, the Better If you start investing for retirement at age 40, put only $2,000 a year in an IRA earning 5 percent for 25 years, you will have $95,454 at age 65. However, if you start the same retirement plan 10 years earlier at age 30, you’ll have $180,641 at age 65!
Accumulating assets to enjoy in retirement is only part of the long-term financial planning process. As people grow older, they must also consider how they can most effectively pass their wealth on to their heirs, an activity known as estate planning. We’ll examine this complex subject—which includes such topics as wills, trusts, and the effects of gift and estate taxes—in Chapter 15.
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1-3c Special Planning Concerns
Students may not think that they need to spend much time on financial planning—not yet, anyway. However, the sooner you start, the better prepared you’ll be to adapt your plans to changing personal circumstances. Such changes include changing or losing a job, relocating to a new state, getting married, having children, being in a serious accident, getting a chronic illness, losing a spouse through divorce or death, retiring, or taking responsibility for dependent parents. These and other stressful events are “financial shocks” that require reevaluation of your financial goals and plans.
Go to Smart Sites
Would you like to know about free educational programs and tutorials on financial planning? The Federal Reserve Bank of Chicago has put together a number of resources for self-help on many topics.
Managing Two Incomes Did you know that the earnings of the average dual-income family will add up to more than $1 million over the wage earners’ lives? Today, two-income couples account for the majority of U.S. households, and many depend on the second income to make ends meet. Often, however, a second income doesn’t add as much as expected to the bottom line. Higher expenses such as child care, taxes, clothing, dry cleaning, transportation, and lunches may consume a large part of the second paycheck. And two-income families tend to spend what they earn rather than save it. Spouses should decide together how to allocate income to household expenses, family financial goals, and personal spending goals. Will you use a second income to meet basic expenses, afford a more luxurious lifestyle, save for a special vacation, or invest in retirement accounts? Some couples place all income into a single, joint account. Others each contribute equal amounts into a joint account to pay bills but retain individual discretion over remaining income. Still others contribute a proportional share to finance joint expenses and goals. In any case, both spouses should have money of their own to spend without accountability. For examples of managing two incomes, see the worksheets in Chapter 2.
Managing Employee Benefits If you hold a full-time job, then your employer probably provides various employee benefits, ranging from health and life insurance to pension plans. These valuable benefits can have a
major financial impact on family income. Most American families depend solely on employer-sponsored group plans for their health insurance coverage and also for a big piece of their life insurance coverage and retirement needs.
Today’s employee benefits packages cover a full spectrum that may include:
▶ Health and life insurance
▶ Disability insurance
▶ Long-term care insurance
▶ Pension and profit-sharing plans
▶ Supplemental retirement programs such as 401(k) plans
▶ Dental and vision care
▶ Child care, elder care, and educational assistance programs
▶ Subsidized employee food services
Some companies and industries are known for generous benefit plans; others offer far less attractive packages. In general, large firms can afford more benefits than small ones can. Because employee benefits can increase your total compensation by 30 percent or more, you should thoroughly investigate your employee benefits to choose those appropriate for your personal situation. Be sure to coordinate your benefits with your partner’s to avoid paying for duplicate coverage. Companies change their benefit packages and many are shifting more costs to employees. Although an employer may pay for some benefits in full, typically employees pay for part of the cost of group health insurance, supplemental life insurance, long-term care insurance, and participation in voluntary retirement programs.
Due to the prevalence of two-income families and an increasingly diverse workforce, many employers are replacing traditional programs, where the company sets
Financial Planning Tips
PLANNING FOR CRITICAL LIFE EVENTS
Just like you, financial plans go through stages and must adapt to changes over your lifetime. Here are some of the critical life events that may make you reconsider and possibly revise an existing financial plan.
● Marriage. Finances must be merged, and there may be a need for life insurance.
● Children. It’s time to start a college saving plan and revise your budget accordingly. A will is needed that makes provisions for guardianship if both parents die while the children are minors.
● Divorce. Financial plans based on two incomes are no longer applicable. Revised plans must reflect any property settlements, alimony, and/or child support.
● Moving into middle age. Although having started a savings and investing plan early in life should be paying off, the number of working years is declining, along with future earning ability. The shorter time horizon implies that you may want to take less risk by keeping less money in the stock market. While
the greater safety is appealing, the reduced expected returns are also sobering. In addition, this could be the time to consider long-term care insurance for possible use in retirement.
● Death of a parent. The estate must be settled, and help may be needed in managing a possible inheritance.
● Retirement. Hopefully, your financial plan provided the amount needed to fund retirement. During retirement, you will try to preserve your capital and will rely on the income generated by your investments to fund your living expenses. Although investment risk should be reduced greatly, it cannot be eliminated because inflation risk must be managed. Money will be withdrawn from tax-deferred retirement accounts but taxes will be due. The risk of increases in future tax rates can be managed, in part, with Roth IRAs, which are retirement accounts where your original contributions are not tax-deductible but your earnings on the account are not taxed. Estate planning and long-term care issues should also be addressed.
the type and amount of benefits, with flexible-benefit (cafeteria) plans. In flexible-benefit programs, the employer allocates a certain amount of money to each employee and then lets the employee “spend” that money for benefits that suit his or her age, marital status, number of dependent children, level of income, and so on. These plans usually cover everything from child care to retirement benefits, offer several levels of health and life insurance coverage, and have some limits on the minimum and maximum amounts of coverage. Within these constraints, you can select the benefits that do you the most good. In some plans, you can even take part of the benefits in the form of more take-home pay or extra vacation time!
flexible-benefit (cafeteria) plans the employer allocates a certain amount of money to each employee and then lets the employee “spend” that money on the benefits that suit his or her age, marital status, number of dependent children, and level of income
Managing Your Finances in Tough Economic Times Tough economic times can be due to broad macroeconomic trends like a recession, or they can be brought on by more
personal, local developments. The effects of recessions and financial crises divide people into three groups: (1) those who are directly and severely hurt through job loss, (2) those who are marginally hurt by reduced income, and (3) those who are not directly hurt. If you are in either of the first two groups, then you must make significant lifestyle changes to reduce spending. Even if you are in the last group, a recession affects you indirectly. For example, retirement accounts typically drop in value, and financial plans must be revised. And everyone’s expectations are at least temporarily affected, which causes most people to be more cautious about their expenditures during a recession or crisis.
The financial crisis of 2008 and 2009, and the subsequent long period of high employment, was a macroeconomic challenge of historic, global proportions. It drives home the benefits of having a sound financial plan—and dramatized the cost of not having one. The precipitous decline in stock and home prices, and the number of people laid off from their jobs, made everyone think a lot more about financial planning in general and how to survive a financial crisis in particular. Although we all hope that such broad crises will be rare, it is important to plan for a possible recurrence. All of the financial planning
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marching men, and the rattle of gun waggons; and I felt the spirit of an heroic people like a physical vibration about me. After that come a thousand memories, strangely distant now, like an old dream, of roads black with fugitive people, retreating from the red flame of war; of French and Belgian towns under the first shell-fire, until they fell into flame and ruin; of wounded men, clotted with mud and blood, very quiet, on dirty stretchers, lying in rows under brown blankets, on railway platforms, in improvised hospitals, piled in farm carts, huddled under broken walls, in endless caravans of ambulances; the reek of blood, disinfectants, death; troops on the march, guns going forward, the French cavalry riding on saddle-galled horses, machineguns in cornfields; troop trains; stations crowded with regiments; fields strewn with dead; women wheeling perambulators with babies and household goods, boys pushing old men along in wheelbarrows, farmcarts laden with children, furniture, grandmothers; the cry reiterated of “Sales Boches!”; the words “C’est la guerre!” repeated as an endless reason for infinite resignation to all this agony, and terror of civilian folk trapped in chaos; the phantasmagoria of war in modern civilisation; and always the courage of women, the valour of men, the immortal spirit of France rising above the torture of its soul and body, while the enemy thrust closer to its heart. In those days— ten years ago—an Englishman in France dedicated his heart to these people....
T E C
And in those days the French people loved the English and their kinsfolk, so that when the first British troops appeared they went mad with joy, as I saw, kissing them, with streaming tears, dancing round them, flinging flowers to them, giving them fruit, as those boys, clean-shaven, bronzed, smart, laughing, singing, “It’s a long, long way to Tipperary,” went forward to be killed, wounded, maimed, blinded, broken, as most of them were before the end came, and some very soon. Vivent les Anglais!... Have the French people forgotten, or have we?
I was in Paris, after wild adventures, with two comrades on a day in September when it seemed that the city was doomed. It was already deserted. At mid-day, between the Place de la Concorde and the Etoile, we saw only one man, and that a policeman on a bicycle. It was no longer the seat of Government. Vast numbers had fled. We had seen them storming the trains. All others sat indoors, with their shutters closed, waiting for the tramp of German soldiers down the streets. The German guns were as close as Chantilly. Only a miracle could save Paris, as we knew, having seen the retreat of a French Army through Amiens, and the stragglers of the British Army after the Retreat from Mons, and the advance of the enemy as far as Beauvais, and a hundred signs of impending tragedy. The sun was glittering on the golden eagles above one of the bridges. The palaces, domes, spires of Paris were clear-cut under a cloudless sky. All the beauty of the city, all its meaning to the world in knowledge and art and history, invaded our hearts. If Paris were taken and France beaten, civilisation itself would be defeated and life would be worthless, and God mocked. It could not happen like that. A miracle must happen first. For God’s sake!
The miracle happened—the miracle of the Marne. The German tide was turned at last. By the blunder of the German Staff, by the audacity of Foch, by Galliéni with his army in taxi-cabs, by the desperate valour of French soldiers, fighting, dying, maddened by thirst, with untended wounds, with rage in their hearts, agonising, but without surrender in their souls because the life of France was in their guard that day They won a victory which smashed back the German Army and destroyed their plan.
The British Army had a small share in that victory of the Marne. Its weight did not count for much, but its artillery harassed the German retreat with deadly execution, and in fighting down from Mons it had helped to spoil the German time-table and to bar the way to Paris for just that little time which enabled France to stand on its line of battle and repair the dreadful blunders of its first defence.
Have the French forgotten that? It happened ten years ago!
T W
The Germans were forced to dig in. It was the beginning of trench warfare. Then the line hardly altered for four years more, in spite of endless battles and unceasing death.
The British Regulars—that “contemptible little army” as the Kaiser called it before its rifle fire mowed down his men—were spent and done after the first and second Battles of Ypres, where they barred the way to Calais with a thin line standing among their dead. The Territorials—volunteers before the war—arrived, as steady as old soldiers. It was due to them that the Regulars had been able to get to France, leaving them for home defence. Then the new armies came into the field—“the Kitchener boys”—the First Hundred Thousand. They were those young men who had stormed the recruiting offices at the first call: from the Universities, public schools, city offices, village shops, and fields. They had been together in the ranks, learning each other’s language, bullied by sergeant-majors, broken in by discipline, taught to forget the decencies of civilisation as they had known it in their homes, the little comforts of their former state, individual liberty Already they had left their old civilian life far behind. Yet they came out to France and Flanders like schoolboys in keenness and enthusiasm. They wanted to get into the “real thing” after all that gruelling training. They got into it quickly enough, up beyond Ypres at Hooge and St. Julien, or further south at “Plug Street” and Hill 60. They sat in water-logged trenches, with bits of dead bodies in the mud about them, under frightful shell-fire twenty times greater than the answer of their own guns because they were weak in artillery and short of shells. (The workers at home had not got into their stride in pouring out the engines of destruction.) They had no dug-outs worth the name. Only the Germans knew how to build them then, as they knew most else of war, as masters of technique, overwhelmingly superior in material, and in organisation. The British were in the low ground everywhere, with the Germans on the high ground, so that they could not march or move by daylight, or light a fire, or cross a road, without being signalled to watchful eyes and shelled without mercy. They were lousy in every seam of their
shirts. There was no chance of cleanliness unless they were far behind the lines. Young gentlemen of England—and of Scotland, Ireland and Wales—found themselves like cave men: eating, sleeping, living in filth and the stench of corruption, under winged death searching for their bodies. They saw their comrades blown to bits beside them; counted their own chances, coldly, made it one in four, with luck. They were afraid of fear. To lose control—that would be worst of all. To show funk before the other men, to feel themselves ducking, shrinking, weakening, under those cursed shrieking shells, to surrender will power—that would be fatal. Some did, gibbering with shell-shock, or shot as cowards; but few. The marvel was that youth could stand so much, and still make jokes, laughing at the frightful irony between their old life and this new one, between the old lessons learnt by nice little gentlemen in nurseries, and this bloody business and primaeval stuff of killing and being killed!
It was truly a world war. Italy had come in. British troops were fighting in Africa and Asia. The Japanese Navy was in alliance with the British Fleet. Both France and England brought over coloured troops. Indian Princes poured out their wealth and offered their man power. Sikhs and Pathans rode through French fields. Gurkhas cut off the ears of German peasants after cutting their throats with curved knives. Indian cavalry, dismounted, were sent into the wet trenches of French Flanders and died of cold if they did not die of wounds. Seneghalese negroes drove French lorries, were massacred as infantry Moroccans were billeted in French villages and Arab chiefs rode through Dunkirk. Chinese coolies unloaded British shells and cut down French forests for British trench props. And the coloured races of the world were shown the picture of the white races destroying each other for some reason which was never clear to them....
T S S
The British Armies in France and Flanders reached their full strength before their great offensive on the Somme in the summer of
1915. In material and in manhood they were the best that England and the Empire could produce. The men were the fine flower of their race, in intelligence, physique, training, and spirit. In time of peace they would have lived to be leaders, administrators, artists, poets, sportsmen, craftsmen, the “quality” of their nation; the fathers of splendid children. They were in living splendour the priceless treasure of the British folk—and they were squandered, wasted, and destroyed.... Behind them now was an immense power in artillery and ammunition and the material of destruction. The factories in England had been working at full pressure, millions of women had been stuffing shells with high explosives; guns, guns, guns came pouring up the roads towards the front in an endless tide; the ground was piled with ammunition dumps, and British Generals had at their command a fighting machine incomparable at that time, not only in weight of metal, but above all in freshness of enthusiasm and heroic human fire.
The British Armies rose out of their ditches for the great attack with an ardour that had never been seen before in the history of war, and in my judgment will never be seen again. They believed that at last— after artillery duels deciding nothing, after muddled battles like that of Loos, mining and counter-mining, and trench raids, and the gain of little salients at murderous cost—they were going to “do the trick” and end the war by irresistible attack. I saw the glory of those young men and the massacres of their bodies and hopes.
At the first assault, after the greatest bombardment ever seen yet still leaving forests of barbed wire and a fortress system of trenches and tunnels twenty miles deep behind the German front lines, they were mown down in swathes by German machine-gun fire, and afterwards, in isolated positions to which they staggered, blown to bits by German gun fire. By desperate courage they smashed through the outer earthworks of that infernal trench-system; for five months they fought through that twenty miles, yard by yard; but it was sheer slaughter all the way, and they were the victims of atrocious staff work, incompetent generalship, ruthless disregard of human life, repeated and dreadful blundering. The British Generals cannot be blamed. They were amateurs doing their best in an
unknown type of war They had to learn by failures and by mistakes. Perhaps their mistakes were not worse than those of the enemy’s High Command; or not much worse. But for the men it was Hell. They were ordered to attack isolated positions, which often they captured although the whole arc of German gun fire for forty miles around was switched on to their bodies until they were annihilated. High Wood, Delville Wood, Trones Wood, Mametz Wood—a hundred more—are names that bleed with the memory of enormous sacrifice of British youth. In the end they won through to open ground and forced the enemy into a far retreat to the shelter of the Hindenburg line.
The German losses in these battles of the Somme were frightful too, and for a time certainly broke the spirit of the German Army, as thousands of letters left in their dug-outs proved beyond doubt. Their agony was as great as that of the British troops. They were pounded to death in their trenches and dug-outs, until all that land stank of their bodies, and one could not walk without treading on them. They were stunned by shell fire, tortured by fear beyond human control as they crawled out of their broken ditches to meet British bayonets. Their heroism was wonderful, as all our men confessed with an admiration which extinguished hate among those—nearly all—who had a sense of chivalry. But their losses, though enormous, were not as great as the British suffered, not half as great, I think, because defence was less costly than attack in those conditions. By the end of the battle of the Somme half a million of the finest manhood of Great Britain had been killed, wounded, blinded, shell-shocked, and broken.
The tide of wounded flowed back from the fields of the Somme in endless columns of ambulances, where the bad cases lay under brown blankets with only the soles of their boots visible. To the end of my life I shall remember those upturned soles and the huddled bodies above. The walking wounded formed up in queues outside the dressing stations: silent, patient, dog-weary, caked with a whitish clay. The casualty clearing stations were crammed, and the surgeons were overworked while, row upon row, the badly wounded were laid on the grass outside the tents or on blood-stained
stretchers waiting for their turn. The “butcher’s shop” in Corbie had a great clientèle. Whiffs of chloroform reeked across the roadways. Fresh graves were dug in cemeteries behind the lines, in spreading areas. The lightly wounded, after a little rest, came back laughing, cheering and joking. A Blighty wound!... Home again!... Out of it for a few months of grace!
T S V
By the end of the Battle of the Somme the first impulses of the war had died down, the first emotions had been forgotten. Disillusion, dreadful experience, bitterness, had turned the edge of idealism. One cannot understand the mind of men ten years after without going back to that period of disenchantment. The young men who had hurried to the recruiting stations were on fire with enthusiasm for France and Belgium, for the rescue of liberty and civilisation, and for love of England. They became rather damped in the training camps because of so much red-tape, eyewash, spit and polish, and humiliation. They were handled, not like men filled with heroic spirit, but often like swine. Sergeant-majors swore at them in filthy language; old officers, too feeble for the front or sent back in disgrace for their incompetence, set them to ridiculous, time-wasting work. Reviews, inspections, parades, took the heart out of them. They had not joined for this ... they were trained and staled by the time they went to France, though their spirits rose at the thought of getting into “the real thing” at last. They didn’t like it. They hated it when its routine became familiar and horrible and deadly. They were ready to stick it out to the death—they did so—but certain values altered as their illusions were shattered. It was all very well—though not at all pleasant—to die for civilisation or liberty, but it was another thing to die for some old General they had never seen because he ordered them to attack positions which were wrongly marked on his maps, or because he was competing in “raids” with the General commanding the line on his left, or because he believed in keeping up the “fighting spirit” of his troops by ordering the capture of German trenches which made another salient in his line and were bound to be blotted out in mud and blood as soon as the German
guns received their signals. Dulce et decorum est pro patria mori. Sweet to die for one’s country—in the first flash of enthusiasm—and afterwards necessary anyhow, though distinctly unpleasant to have both legs blown off, or both eyes blinded, or one’s entrails torn out. But not in any way comforting to be sent over the top with a battalion unsupported on the right or left, or with wrong orders, or without a barrage to smash the enemy’s wire, or by some incredible blunder which meant the massacre of a man’s best pals and a hole in his stomach. Inevitable, perhaps. Yes, but unforgivable by its victims when it became a habit.... Over and over again battalions were wiped out because some one had blundered. It was the same on the German front, the French front, every front. And its effect in the minds of the fighting men was the same in all nations and on both sides of the line. It made them rage against the Staff. It made them feel that the front line men were being sacrificed, wasted and murdered by pompous old gentlemen and elegant young men living very comfortably behind the lines in pleasant châteaux of France, far from shell fire, growing “flower borders” on their breasts. Men talked like that, with increasing irony. They were unfair, often. It’s not easy to be fair when one’s certain death is being ordered by influential folk who do not share the risks.
T P H
For England’s sake! Yes, those young officers and men who went through the battles of the Somme and many others, seeing no end to the war, and the only chance of life in a lucky wound, endured everything of fear and filth, because at the back of their minds and hidden in their hearts was the remembrance of some home or plot of earth, some old village with an old church, which meant to them— England, or Scotland, or Wales. They “stuck it” all because in their spirit, consciously or unconsciously, was the love of their country, and in their blood the old urge of its pride. But as the war went on even this, though it was never lost and flamed up again in the darkest hours, was overcast by doubts and angers and ironies. They were all so damned cheerful in little old England! They took the losses of men as a matter of course. Business as usual and keep the
home fires burning! That was all very well, but those “charity bazaars for the poor dear wounded,” all that jazz and dancing and lovemaking, giving the boys a good time in their seven days’ leave, earning wonderful wages in the munition works, making enormous profits out of shipping and contracts, spending their money like water, filling the theatres, keeping up the spirit of the nation, wasn’t it too much of a good thing when viewed from the angle of a trench with one’s pals’ dead bodies in No Man’s Land, and a blasted world around one, and death screaming overhead?
The profiteers were determined to “see this thing through,” to the bitter end. The Statesmen would fight to the last man. The old gentlemen on military service boards were outraged by poor devils with wives and babes who tried to evade conscription. At dinner parties and banquets these same old gentlemen, in clean linen, grew purple in the face with eloquence about the unthinkable shame of peace without victory. They would sacrifice their last son, or at least all their numerous nephews, on the altar of patriotism. They would go without sugar to the end of time rather than yield to a brutal enemy. Noble sentiments! But some of the sons and the numerous nephews who were going to be sacrificed on the altar of patriotism were secretly hoping that diplomacy, or strategy, or some miracle of God might find some decent way of peace before that sacrifice was accomplished. They were in love with life, those boys of ours. They didn’t want to die, strange as it may have seemed to those who thought it was their duty to die and look pleasant about it.
They were unfair, those fellows who sat in wet trenches cursing the levity of England, writing sonnets, some of them about the murderous old men and the laughing ladies. It was true that some old men were making money—piles of it—out of all this business of war. It was true that some of the pretty ladies seemed callous of the death of the boys they “vamped.” It was true that large numbers of men in factories and workshops were making fantastic wages in safe jobs while poor old Tommy was dodging death in the mud for fourteen pence a day. It was true that war and casualties had become so familiar to the mind that many folk at home were beginning to accept it all as a normal thing. It was true that
cheerfulness, gaiety, high spirits, were adopted as the only code of life, and that melancholy, fear, pessimism, prophets of woe, were barred as people of bad form. It was true that the imagination of the average man and woman at home was incapable of visualising a front line trench or a battlefield under a German barrage fire. It was true that the newspapers were full of false optimism and false victories. It was true that in a war against militarism England had been militarised, and that officers on seven days’ leave from Hell-onEarth were insulted by little squirts called A.P.M.’s because they didn’t carry gloves or because their collars were too light in colour, with a thousand other tyrannies. It was true that the hatred of women against “the Huns” was not shared by men who had come to have a fellow-feeling in their hearts for German peasants caught in the trap of war against their will, with no less courage than the men who killed them or whom they killed. It was true that parsons professing Christianity were more bloodthirsty than soldiers who cried out to God in hours of agony and blasphemed in hours of rage. It was true that in England in war time there was a noisy cheerfulness that seemed like callousness to those condemned to death. But it was not true that England was indifferent to the sufferings of the men, or that all that optimism was due to carelessness, or that all the laughing ladies were having the time of their lives because of war’s delightful thrill and the chance of three husbands, or more lovers, in rapid sequence as battle followed battle and wiped out young life.
T A E
Beneath the mask of cheeriness England agonised. Fathers grew old and white and withered because of their sons’ sacrifice, but kept a stiff upper lip when the telegraph boy was the messenger of death. The mothers of boys out there suffered martyrdom in wakeful nights, in dreadful dreams, though they kept smiling when the boys came home between the battles and—worst of all—went back again. They hid their tears, steeled their hearts to courage. Even the pretty ladies —the most frivolous, the most light-hearted—gave their love so easily because it was all they had to give, and they would grudge nothing to the boys. Apart from a vicious little set, the women were
beyond words wonderful in service and self-sacrifice. In spite of all the weakness of human nature and the low passions stirred up by the war, the British people as a whole during these years of great ordeal were sublime in resignation and spiritual courage. In millions of little houses in mean streets, and in all the houses of the rich, to which a double knock came with news of a dead or wounded boy, the awful meaning of the war burnt its way into the soul of the people. But they would not yield to weakness and had a stubborn obstinacy of faith in final victory—somehow, in a way they could not see. Anyhow, they wouldn’t “let down” their men or show the white feather. They did not know that many of the men were sullen because of this unreasonable optimism, this “bloody cheerfulness.” They did not know that in the trenches, under an awful gunfire, many men looked back to England as to another world, which they no longer knew, from which they were cut off by spiritual distances no longer to be bridged, and for whose safety, frivolity, profiteers and prostitutes they were asked to die, to be shell-shocked, gassed or mutilated, under incompetent generalship and for inadequate reasons.
The meaning of the war in those men’s minds had become less simple and clear-cut since the days when it seemed a straight fight between idealism and brutality—the Allies with all the right on their side against the Germans with all the wrong. To the end some men thought like that, and they were lucky. They were the generals, the statesmen, and, now and then, the fighting men with unbending will and purpose. But to many of our officers and men sitting in their ditches, as I know, the war was no longer as simple as that. It was no longer, they thought, a conflict between idealism and brutality. It had developed into a monstrous horror, a crime against humanity itself, in which all the fighting nations were involved equally in a struggle for existence against powers beyond their own control. The machinery of destruction was greater than the men who were its victims. Human flesh and spirit were of no avail against long-range guns and high explosives. The common German soldiers, blown to bits by our guns, torn to fragments by our mines, poisoned by our gas, as our men were so destroyed, had no more responsibility for these devilish things than we had. It may have been so in the
beginning—though that was doubtful. What did they know in their peasant skulls? But now they were just the victims of the ghastly madness that had stricken us all, of the crime against civilisation into which we had all staggered. There was no getting out of it, of course. The Germans had to be killed or they would kill us, but the whole damned thing had happened against the will of those who on both sides of the lines cowered under screeching shells and hated it. Surely to God, they argued, it ought not to have happened! It was civilisation that had been at fault, not those poor devils in the mud and mire.
It was the statesmen and politicians who were guilty of this thing, or the Kings and the Emperors, or the schoolmasters and the journalists, or the whole structure of society based on competition and commercial greed, supported by armies and fleets, or the incurable stupidity of the human race, or a denial of God in the hearts of men; but not the fault, certainly, of those fellows from Bavaria and Saxony who were waiting for our next attack and writing picture-postcards in their dug-outs to women who would soon be widows. So many of our men began to talk and think, as every padre knows and as I know. So, even in France, the soldiers argued, if we may believe Barbusse and others, whom I believe as evidence of that. So certainly the German troops were thinking, as I heard from prisoners and afterwards from those who had fought to the last. The original meaning of the war altered, or was overwhelmed, as man sank more deeply into the mud and misery of it on both sides. It was only a few who held fast to its first principles of right and wrong, simple, clear, and utterly divided by a line of trenches and barbed wire.
U L
The “Long, long way to Tipperary” had carried our men far from the first enthusiasm with which they had joined up as “crusaders for civilisation.” And yet they had an instinct of loyalty in them stronger than all their doubts, angers and ironies. Again and again, before their battles, and at the worst time, it rose and carried them through
to desperate endeavour or frightful endurance. It was loyalty to their own manhood, to their division and battalion, to their comrades, to the spirit of this hellish game, and to the old, old spirit of race which they could not deny. The orders might be wrong, but they obeyed. The attack might be doomed before it started—and often was—but they went over the top, all out. The battalion might be wiped out under high explosives, but the last of the living, lying among the dead, held on to their holes in the earth until they were relieved or killed or captured. Comradeship helped them. It was the best thing they had all through, and very wonderful; and, more wonderful still, they kept a sense of humour, whimsical, ironical, vulgar, blasphemous, and divine, which made them guffaw at any joke suggested by a pal and laugh in the face of death itself if it were not immediate in its menace. To the end the British Army kept that saving grace of humour, denied to the Germans, not so common with the French, but our most priceless gift in a world of horror. So they went on with the job of war, while the casualties tore gaps in their ranks.
New men came out to take their places. Fresh contingents arrived from the Overseas Dominions. There were new and monstrous battles. The Australians had already come to France after the tragic epic of Gallipoli, in which they too had lost the flower of their manhood. The Canadians had been a strong link on the British front since the early battles of Ypres. In England conscription took the place of recruiting. There was to be no escape from the ordeal for any able-bodied man unless he was wanted for a home job or could get one to save his skin or his conscience.... The war went on in France and Flanders, in Italy, Russia, Palestine, Turkey, Africa. The British Empire was all in, everywhere, on sea and land. The area of destruction was widened as the months passed and the years. Battles became more murderous because the technique of war was becoming more “efficient,” its weapons more deadly. Guns increased in number and in range. Poison gas supplemented high explosives. Aeroplanes increased in size, in power, and speed of flight; in bombdropping activity Tanks arrived. The British battles in Flanders five months long, after those of Arras and Vimy and Messines, were more ghastly, more sacrificial, than those of the Somme. They were
fought in mud and blood. Men were drowned in shell craters. Battalions were blotted out by machine-gun fire, high explosives and gas shells.
T W E
The Germans gave way slowly, after stubborn defence, from every yard of cratered earth. Their own roads were choked with the traffic of the wounded—an endless tide of human agony. Behind them there was a welter of death and wreckage. Their man power was giving out on the Western Front. The collapse of Russia, stricken by infernal losses—four million dead!—with the very machinery of its life broken down under the weight of war, in revolt against the corruption of its own state, enraged by treachery from within, and weakened by a spreading anarchy among men who declined any longer to be slaughtered like sheep, gave Germany her last and only chance of flinging fresh forces on to the Western front and smashing through to victory by a last prodigious effort.
France was exhausted, but not yet spent. Her youth also had been thrown into the furnace fires recklessly, without a chance, time and time again, from the very beginning. Some of her generals had blundered, quarrelled, intrigued, while the manhood of France was bleeding to death. Battalions of young boys—as at Souchez—had flung themselves against almost impregnable positions and had fallen like grass before the scythe. Her coloured troops had been slaughtered like poor dumb beasts in storms of fire. Grand offensives in Champagne had been broken after losses hidden from the French people, though leaking out. The defence of Verdun, saving France from surrender, had drained it of its most precious life’s blood. There were periods when France almost despaired, when there seemed no hope at all of final victory, but only of gradual extermination, which would leave France anyhow with but women and cripples and blinded soldiers and old men, and politicians, and profiteers. At the back there were periods of mortal depression. At the front the spirit of the men was sullen. There was mutiny in many ranks. They refused to be launched into another of those “grand offensives” at
the bidding of generals who wasted blood like water The French Army ceased fighting, while the British struggled in Flanders, at the cost of 800,000 casualties in five months.
G ’ L O
Then came the crash of the German offensive in March of 1918: against the British line first. They had 114 Divisions, many fresh from Russia, against 48 under British command, tired after Flanders, and thinly scattered over a big front. It was the last thrust of the German war machine, and marvellously organised, directed and fought. The German Army, in spite of many blunders in High Command, had shewn a dynamic energy, a driving force, a relentless will, and a marvellous valour which was wellnigh irresistible. The German soldiers were no less brave than the British or French, no less wonderful in self-sacrifice, no less enduring in agony. Their final effort, when they put in the last of their man power, was a supreme achievement to which we must render homage if we have any chivalry in our souls, in spite of a loathing of war which now makes all such retrospect a nauseous horror. The German sergeants and machine gunners who carried out the new tactics of “infiltration” were great soldiers and gallant men.
The thin British line—after that struggle in Flanders and battles round Cambrai—was broken by the sheer weight of that terrific impact, and the British troops fell back fighting, until out of whole divisions only a few hundreds were left standing, and there was but a ragged line of exhausted men between Amiens and the sea.
The heart of the English-speaking peoples—all of them now, for the United States was with us at this time—stopped beating for a while, or seemed to do, as the news of that German advance went over the wires of the world. After all the battles of the French and English, their struggles, their slaughter, their sacrifice, their endurance, it looked for a little while as though it had all been in vain, and that all was lost. That was not ten years ago. It was less than seven. Yet can we recall even those days, when we felt stone cold, with a sharp anxiety thrusting its knife into our brains as the
Germans came across the fields of the Somme, retaking all that ground which had been fought for yard by yard—drew near to Amiens, turned on the French, smashed their line as the British line had been smashed, and drove down to the Marne as in the first month of the war? Truly it looked like defeat. How near we were to that was only known at the time, perhaps even now, to those of us who saw with our own eyes the wild and tragic chaos of our falling back, the exhaustion and weakness of the French and British troops who had fought down to their last few men in every battalion, and the old battle grounds in possession of the enemy Frightful weeks; ghastly emotions; scenes to sear one’s imagination for ever. Yet now —hardly remembered, so strange and self-protective is the human mind!
Looking back on that time, trying to recapture its sensations and philosophy, I cannot remember any absolute despair in England and France. By all the rules of the game we had nearly lost—within a hair’s breadth—yet we did not acknowledge that. There was no cry of surrender from either of the nations, which still had a fixed faith that ultimately we should win, somehow. There was something astounding in the stolidity of the British people on the edge of great disaster. To men at the front it seemed ignorance of the extremity of peril. But it was the spirit of the race steadying itself again to fresh ordeals, unyielding in pride; they could not be beaten, it was unthinkable. To hint it was a treachery. If more men were wanted the youngest brothers would follow their older brothers. So it happened. Three hundred thousand boys of eighteen, the last reserves of Great Britain, were shipped over to France to fill up the frightful gap. From the factories which had been pouring out the material of war, not only for the British Army but for all the Allies, all but the most indispensable men were enrolled. The physically unfit, soldiers many times wounded, old crocks, were sent out to the depôts in France.
A C I
One new power was almost ready for active service on the side of the Allies. If France could only hold out long enough, this new and
arduous weight would be bound to turn the scale at last against German man-power, drained down to its last reserves. The United States Army was pouring into France with great tides of men, magnificent in physique, keen in spirit, and unscarred as yet by the fires of the war. They were untrained, ignorant of lessons that could only be learnt by deadly experience, and their Generals were novices in the organisation and handling of vast masses of troops, as the British had been. They were bound to make ghastly mistakes. They would waste their men as ours had been wasted, by faulty staff work; but sheer weight of numbers and the spirit of brave men would in the long run be irresistible. Had we the time to wait for them?...
We had been waiting long for them—too long as some thought, not realising the diversity of racial views in that great country and knowing little of its historical character and meaning. Vast numbers of its people had come from Europe in the past, distant or recent, to escape—Europe. They had wanted to get away from the very hatreds and rivalries which had led to this monstrous conflict. They desired to live secure, in a civilisation where the common man might work in peace and liberty without being flagged to fight for some Kings’ quarrel or the ambitions of diplomats, or the fever of racial passion. Great numbers of them could not understand what the European quarrel was about when all was said and done. Anyhow, it had nothing to do with them, in the Middle West and the West, though New York seemed to be worried. Many intelligent Americans, shocked to the soul by this breakdown of civilisation in Europe, believed sincerely that the best service they could render the world was to stand on one side, to act finally as arbitrators between the exhausted nations among whom neither side could win—it looked like that—and to lead the stricken peoples back to sanity and peace. German Americans had a natural sympathy with the old fatherland though dismayed by its ruthlessness. Irish Americans still disliked England too much because of bitter and traditional memories to weep tears over her sacrifice or to glow with pride at the splendour of her spirit. Czechs, Slavs, Swedes were utterly neutral. In any case, apart from all racial strains, the war in Europe was enormously distant to the souls of men on isolated farmsteads, or to the crowds in the main streets of little towns west of New York. They elected
President Wilson to keep them out of the war, and that strange man, with his mingling of mysticism and practical politics, his moral eloquence, and his autocratic methods, his mental disgust at war and violence, and his belief that the spiritual destiny of the United States was not to be fulfilled in terms of military force, or by any entry into the quarrels of the Old World, made them resist for a long time the strain of almost intolerable pressures, such as the German Uboat war and the rising passion of American opinion, in many classes not neutral, not indifferent to the cause of France and Great Britain, but tortured by shame, impatience, rage, because the Government of the United States refused to call its people to a crusade on the side of right and justice.
All the old stock in America, or nearly all, millions of people in little American homes who read English books, whose minds were soaked in English history, whose ancestors had sprung from English and Scottish soil, panted for their deliverance from a neutrality which was a fraud and a shame in their hearts. They were not neutral. They never had been. They were all for England. Millions of others— remembering Lafayette, and filled with a deep sentiment for France, an enormous admiration for French heroism—enraged against Germany for the ruin she had made in France—loathed the policy of President Wilson, which seemed to them cowardly, selfish and unworthy. The pressure on Wilson became stronger and more insistent. Germany helped them in every possible way by deliberate insult, by methods of sea warfare outside the traditional code of common humanity; by plots, incendiarism, and sabotage within the United States itself in order to check the supplies of stores and ammunition addressed to England and France. When war was finally declared by the United States in the spring of 1917, the American people, apart from small minorities, were no longer neutral or indifferent, and a tidal wave of enthusiasm for service swept over all barriers and oppositions from coast to coast. It rose higher and higher as the months passed, reaching to a spiritual exaltation, unlike any emotion that had ever possessed that nation before. It had different motives, different manifestations from those which possessed the peoples of Europe engaged in the war. The Americans were not conscious of self-interest. There was no sense
of menace against them such as Great Britain had partly felt. There was nothing they desired to gain for themselves. It was a crusade on behalf of civilisation. It was also unconsciously a desire in the American mind to prove that in spite of all their material wealth, their comfort of life, their peace and security, they were ready to suffer, to make sacrifice, to spend their energy, and their dollars, to give their manhood and their courage for a spiritual ideal. The United States would prove to the world that it had a national soul. It would prove to itself that all the different strains of race within its citizenship had been merged and moulded into a national unity, responsive to the call of patriotism, disciplined by a common code, obedient to the voice of the State speaking for the whole people.
The very suspicion that certain sections of American citizens might be cold to this enthusiasm, even disloyal to the State, made American patriotism more self-conscious, demonstrative, and vociferous than in European nations where it was taken for granted. There was a spreading intolerance of the mass mind because of the need of unity. A nonconformist to this enthusiasm was marked down as a traitor or a shirker. Every American citizen, man, woman and child, had to prove allegiance to the state at war by some kind of service and self sacrifice, in work or dollars or both. Woe betide all pacifists, conscientious objectors, or indifferentists. American methods of work, business organisation, industrial energy, dollar “drives,” were all diverted from peace to war. Financiers, industrial magnates, engineers, organisers, gave their service to the State and “speeded up” the war machine. The entire manhood of the nation was mobilised, drilled, equipped with an utter disregard of cost, and with driving zeal. It was a terrific demonstration of force, physical, moral, emotional, set in motion by generous impulses and terrific in potentiality.
In France and Flanders I saw the arrival of the first American troops, and then the following tide of men, behind the lines of the fighting front. It seemed to me then, as it does now, a miracle of history. After three hundred years the New World had come to the rescue of the Old. They marched over fields like those of Agincourt and Crecy where our bowmen and pikemen had fought before
America was on the map of the world. And yet those men of the United States Army, different in type from ours, belonging to a different civilisation, spoke the English tongue, and no difference of accent could break our sense of kinship with them. Even though they did not all spring from our stock and blood they were in some way heirs of our tradition, our code of law, our root ideas. We watched them pass behind the lines with a sense of comfort and a kind of wonderment. They were magnificent men, untouched as yet by the strain of war, marvellously fresh, like our first youth which was now dead. Their numbers grew and grew One came across their camps everywhere, but one question was like a sharp sword in one’s brain: Had they come in time? The Germans were on the Marne again. Paris was being shelled. Marshal Foch had no reserves. In a few days, if the Germans made another thrust, Paris might be surrendered and the spirit of France broken, and the British army involved in general defeat. Such things were unuttered. They were thrust aside even from one’s own mind. But they kept one’s brain on the rack.
T C -A
Then Foch attacked. As rapidly as his line of blue men had come up to strengthen the British Front after the German break-through—I shall never forget the ride of the French Cavalry, on lean horses wet with sweat, and the hurried tide of blue transport waggons, driven by coal-black negroes, and the endless line of guns with dusty, sullen gunners coming to support us when our men had fought back for three frightful weeks—he withdrew them from our Front. They vanished like a dream army. English and Scottish Divisions were entrained for the French Front. Our own lines were thin and weak. Foch was taking the ultimate risks. American infantry and American Marines were put in at Chateau Thierry for their baptism of blood. French infantry, withdrawn from other parts of the line, left almost without defence, were rushed to the Marne. The German salient thrust out like a battering ram, pointing to Paris, was attacked on both sides, at its junctions with the main line. It was pierced and
