Editor's Note: The following is an edited transcript of my interview with Sheldon Garon, a professor of history and East Asian studies at Princeton University and author of the new book, Beyond Our Means: Why America Spends While the World Saves.
Why Americans don't save
Amar C. Bakshi: U.S. household saving rates peaked in the 1980s at around 11 percent, and by 2005, they had plummeted to near zero. How did America go from a nation of savers to a nation of consumers?
Sheldon Garon: Well, in fact, before World War II we weren’t a nation of great savers. We were a nation of OK savers. Those who did save, saved a lot. But as late as 1910, most Americans didn’t have a savings account. Unlike Europeans and Japanese, they lacked access to savings institutions that would accept very small deposits—such as savings banks and postal savings banks.
But then in the two World Wars, and particularly in World War II, the federal government intervened to encourage ordinary people to save in ways the Europeans and Japanese were doing at the time.
The U.S. government undertook two innovations. First, it introduced U.S. savings bonds right before World War II, and they became very popular and very accessible during and after the war. So that was one of the ways people saved and became good savers in America.
And the other way was the Federal Deposit Insurance Corporation, introduced in 1934, which guaranteed the deposits of small savers in most American banks. So during the Great Depression and after World War II for several decades, we saved at pretty good rates - between about 7 and 11 percent, from 1946 to the 1980s.
Then in the 1980s, Americans stopped being good savers - at first slowly and then very rapidly in the 1990s, particularly as housing and consumer credit became available to Americans in amounts unlike anything seen in the rest of the First World.
First, the credit card industry was deregulated as the result of a 1978 Supreme Court decision. Now able to impose any interest rate they pleased on unpaid balances, credit card firms aggressively expanded their customer base beyond the affluent to target middle and lower income households. By the 1990s, most Americans held not one but several credit cards, and more than half of those cardholders carried unpaid balances.
Second, home equity loans—which had heretofore scarcely existed—exploded. This occurred after the 1986 tax reform made home equity loans one of the few types of credit in which interest remained tax-deductible.
From the 1990s to 2005, homeowners borrowed more and more against their equity as home prices skyrocketed. Americans essentially stopped saving. Why save when you could borrow so easily?
This reliance on easy money came to a crashing halt when housing prices collapsed in 2008.
Why the Great Recession didn't change American behavior
Amar C. Bakshi: U.S. household savings increased after the shock of ’08, but then it dipped again. If the financial crisis of ’08 didn’t get us to save more, what will?
Sheldon Garon: Yes, that’s a very good question. Initially after the 2008 financial crisis and housing meltdown, there were all sorts of media stories that said that Americans were returning to frugality or adopting a new frugality and that savings rates would go above 10 percent.
And, indeed, briefly, for a couple of years after the 2008 crisis, Americans actually increased their savings compared to where they’d been. Personal savings rates went up to about 5 to 6 percent.
But in recent months, the savings rate has trended downward, falling below 4 percent (in December, it rose a bit to 4 percent). Those are not very impressive savings rates.
It is interesting that the crisis didn’t really get Americans - ordinary Americans - to start saving again, partly because so many Americans are now trapped in debt. While more affluent Americans were able to increase their savings rate easily, those in the middle and lower income strata have made efforts to reduce debt, but they are so indebted and have so little savings that it’s been difficult for them to significantly increase saving.
The composition of U.S. household debt
Amar C. Bakshi: Let’s talk about household debt in the United States. We hear a lot about government debt, but household debt is even bigger. What is the composition of this debt? Credit card, housing, education? How does the composition of our debt compare with other countries?
Sheldon Garon: Well, we tend to have very high debt levels relative to our disposable income. The lion’s share of this is housing debt: people’s mortgages, their first mortgages, but also their home equity loans—that is, their second mortgages. So if you take both of these housing loans, they amount to by far the largest portion of American debt. Then you throw in credit cards, etc.
Another big expenditure is what we have to spend on health, either by paying health insurance premiums or, for those people who don’t have good health insurance, what they pay out of pocket. Health is a big component of our consumption. But housing is the really big component of debt.
Amar C. Bakshi: Now we hear politicians across the political spectrum sounding the alarm about America’s national debt. To what extent does America’s low savings rate at the household level contribute to the problem of America’s national debt? Are they separate phenomena or are they related?
Sheldon Garon: They tend to be fairly separate. You can go country to country and find all sorts of different combinations. Japan and Italy have very high levels of national debt as a percentage of their GDP, and yet both countries have very good situations when it comes to household saving.
Sometimes it’s said that the Japanese can support a higher national debt because the ample savings of the Japanese people easily finance that debt. So the cost of servicing national debt in Japan is actually quite low because of the high household savings rate.
In our country too the cost of servicing the national debt right now is fairly low, not because of our household savings, but because of savings coming from the rest of the world – especially from East Asia. And the Europeans, to a lesser extent, are also financing our national debt and making it relatively cheap. So there really isn’t that much correlation between household debt and national debt.
Why Asia saves
Amar C. Bakshi: Turning to China and Asia, a lot of people explain high Asian savings rate in terms of cultural factors. You don’t. You disagree. So what policies have Asian nations, particularly China and Japan, undertaken to spur personal savings?
Sheldon Garon: It’s true that I don’t think culture is as important as we think it is, at least if we’re treating culture simplistically and saying there’s an Asian or a Confucian culture.
In Japan, historically, from the end of the 1800s, the Japanese actually emulated what Europeans were doing to promote saving. They adopted various European policies such as savings campaigns and school savings programs. In particular, the Japanese introduced a British-style postal savings system, where you could bank at any post office that would take any deposit, no matter how small.
China is an interesting case, because under Chairman Mao, from 1949 to the 1970s, we would have never said that Chinese culturally save a lot. First of all, there wasn’t much money, but also there was a very low savings rate of not more than 1 or 2 percent – well below American savings rates at the time.
And then, with a change of institutions after Mao’s death, the Chinese regime established various banks and a post office savings bank in the1980s. All of a sudden, tens of millions, even hundreds of millions of Chinese gained access to savings institutions, and they began to save a lot.
So it really seems to be a story more about institutions than about “culture.” We have thrifty Europeans, and we have thrifty East Asians. They have very different cultures. And yet they save in similar ways and with very similar institutions.
Why Europe saves
Amar C. Bakshi: Let’s focus on the European case. European welfare states, in theory, should promote less savings, because people have a fallback option – the state. You’d think in the United States, with a slightly weaker social safety net, people would save more. So why is economic theory wrong here?
Sheldon Garon: Well, economic theory, in this case, is more or less dead wrong. Since the 1970s in American economics departments, it’s been gospel that if you have a Social Security system—what’s called a national pension system elsewhere - this will disincentivize people from saving, because they know they’re going to get their retirement savings and other social benefits from the government, so why should they bother to save?
It’s accepted, as I said, as the gospel in America. Often economists invoke this theory to argue that Americans have low savings rates because we have a welfare state and a Social Security system.
The odd thing is that when you go over to the core economies of Europe, the Germans, the French, the Belgians, the Swedes, they all have had very high savings rates of over 10 percent for a long time, and yet they have super welfare states.
Although it’s not clear why welfare states actually correlate with high saving I think there are a couple explanations. One, by keeping most people from falling into destitution, welfare states ensure that most households remain financially stable. This automatically results in a higher national savings rate. Whereas in our country, although stable households also save at pretty good rates, we have a significant portion of our population living in poverty. They have to borrow to make ends meet, and so they go further into debt. In other words, credit has become America’s welfare policy.
Also, I think welfare states increase saving by providing citizens with national healthcare and free or low-cost higher education. Healthcare and education are big costs for the average American household. These expenditures, I think, further diminished our savings rate.
How to help the indebted
Amar C. Bakshi: Indebtedness is a problem in the U.S. and around the world. Belgium has an unusual way of dealing with debt, with indebted people. The government comes in and restructures the indebted person’s mortgages; it swoops in to provide social services to address underlying causes. Is that what the United States needs - that level of intervention?
Sheldon Garon: Well, that’s probably a bit much for most Americans. It’s very paternalistic. However, there is something that the Belgians and other Europeans do that I think we could learn from. First of all, the Europeans are keenly sensitive to the problem of their households becoming overindebted. “Overindebtedness” doesn’t even exist as a word in America, much less as a legal term. So we don’t have policies that address the problem of people getting head over heels in debt.
There’s another thing we can learn from Europeans. When people do experience debt problems in Europe, it is state institutions that run the credit counseling services that try and get people out of debt.
We have debt counseling services here, but rarely are they a public service. Rarely are they part of the government. They’re often managed by the finance companies themselves. They’re often run for profit. These debt-counseling services carry fees. If you declare personal bankruptcy in this country, obviously you also have to pay lawyers’ fees.
If we made debt counseling much more of a social service from the government, we might do a better job of preventing people from becoming overindebted.
How to get Americans to save more
Amar C. Bakshi: In your book, you write about cultural figures like Benjamin Franklin who encouraged thrift in America and around the world. Does America need a cultural shift today? And how can that be brought about?
Sheldon Garon: Well, cultural shifts are very difficult to bring about, but there are some things I think we can do. At the very least, I would say institutionally we need to universalize financial education courses in our schools. Financial education has replaced the older idea of school savings programs.
Financial education prepares students for the real world. They would learn all sorts of things, not only about saving but also about investment—as well as the dangers and the opportunities in credit cards, mortgages, and student loans.
But presently we don’t do a very good job in this country of disseminating financial education. Some states and some school boards require financial education courses, but most do not. We really need comprehensive financial education because that, more than anything else, will begin to reshape our culture. It won’t be a culture where people are misers and just save everything, but rather one where Americans become financially literate and understand the risks of credit.
Amar C. Bakshi: Finally, what needs to be done to get Americans, on average, to save more?
Sheldon Garon: It depends on which Americans? If you’re talking about lower income Americans, we have to increase their access to the banks. This is a big problem among lower income people - some 25 percent are what’s called “unbanked.” They have no savings or checking account in any bank.
This is rarely their fault. It has to do with our banks charging high fees and assessing high minimum balances in ways that make it very difficult for small savers to start and maintain accounts.
Most other First World countries have policies of “financial inclusion,” where banks and post offices are mandated to take very small deposits and to create small savers’ accounts for lower income and young people. So I think this is one of the main ways that we can promote saving.
We don’t necessarily need to roll back consumer and housing credit, but we do need to protect Americans from predatory lending, which went on far too long in the 1990s and early 2000s, either in the form of subprime loans or credit cards that came with 30-page contracts nobody could understand and that assessed high interest rates on unsuspecting people who carried unpaid balances.
Both to decrease debt and increase savings, we need to curb predatory lending and increase financial access for small savers.
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No doubt postal financial services would encourage people with low income to save more, as high street banks are usually not interested in this category of customers.
In Europe every community has free debt counseling services. Those (especially unemployed and single parents) who need public funds to make ends meet are often subjected to scrutiny and paternalism, which could at times be humiliating. The last ten years have seen the heavy indebtedness of the young across Europe. They have easy access to loans and credit and indulge themselves in keeping up with their schoolmates and friends. The social pressure is enormous. Many of their parents have to pay for their phone- and credit-card bills. Financial education is still not widespread. But in Singapore, there are money classes for kids, who can learn how to save and invest.
The other huge problem is that you set up a bank account and they find a MILLION ways to fine you for just about everything..if you dont have a huge chunk of cash to deposit then you cant open a savings..banks have become vultures on money that is not even theirs..they charge for debit use, charge for the account if you dont put a chunk of money in , charge if you dont save enough.they dont let you turn off overdrafting if you dont want it without charging you for it..why even allow overdrafting? its horrible..
Credit Unions are very prevalent in the US, and their membership requirements nowadays are generally based on living in a certain area. CU's charge much lower fees than banks, so there really shouldn't be a problem for a low income person to open up an account at one.
The estimated annual cost to a bank of maintaining a single deposit or checking account is $100. The banks make little to none of their profits from the average person keeping small balances in our liquid accounts. The way they're going to make the real money is if we keep larger balances where they can lend out the balances, less the Fed's Required Reserve Ratio. Thus when you go into the red on an account, they will charge you because there is real cost to the banks when that occurs. Bank make their money on the corporate clients with large accounts, mortgage, and car loans. Deposit and checking accounts are simply a means by which they can create convenience and brand loyalty.
@STClown. The public subsidizes the banking industry through the FDIC which is actually a form of corporate welfare. So when you say banks lose moeny on small deposits keep in mind making all those small depositors stakeholders helps banks stay in business by creating public support of an industry that gets a massive insurance underwriting from the govnerment.
@StClown – your $100 figure seems quite high, especially these days where there are no paper transactions, banks no longer mail statements, etc. With everything being electronic nowadays, I would imagine the incremental cost of a single customer to be quite small.
The assertion that the FDIC is federally subsidized is very misleading. The FDIC is funded by insurance premiums paid by banks. During the recent banking crisis, premiums paid by banks increased by over 500% and premiums were actually prepaid for three years by banks that had the liquidity to do that. In reality, strong banks have ended up paying for the failed ones. The FDIC is backed by the government, so if it cannot be fully funded by the banks then the government steps in and funds, which it has not needed to do even through this crisis.
mbankster. The FDIC is funded by premiums paid by banks however, the reason the government (taxpayers) didn't have to fund the FDIC during the last crisis is because they funded the banks directly to the tune of approx 784 Billion.
toobigfish you got that info a bit wrong. The banks did get the bailout money but the 700 billion dollar bailout wasn't to a bank, it was towards AIG. As we were talking about insurance premiums paid by banks, guess what company insured them? AIG. Guess what insurance company insured almost half the banks around the world. AIG. All these companies gambled on the fact that real estate prices would never drop. When it did drop, it created a panic in the real estate and mortgage markets.
The banks, however, received I think 200 billion? Don't be fooled and think it was some reward. None of the banks wanted to receive this money because it essentially meant the federal government would be non-voting "owners" of the company until the bailout money was repaid. The feds promised not to take part but none of them trusted it. If the federal government had not done this, every bank would eventually have had their credit frozen by the investors and regulators. This would mean the average Joe like you and I cannot withdraw our money from our bank accounts. The investors would not be able to receive their invested money either as that money essentially disappears into thin air.
The real issue is the fact that the dollar is worth nothing. Its not backed by gold. It's just a piece of paper that is worth something because someone says it's worth that much. That's why people say invest in gold. Currency that is not backed by gold is not real money.
If the govenment can mandate social security deductions from everyone then they can mandate a Savings account fund for everyone who begins work in thier teens. Just like in texas everyone has to have car insurance, i think they should mandate everyone should have a savings account that they have to contribute to, even if its only 1% of your gross income.
I AGREE Big A! and all social security money that the government collects from you should go into that account. that way the government cannot take your money for 40-50 years and then say SORRY, SOCIAL SECURITY IS BANKRUPT!
And how will you handle withdrawals? It isn't a bad idea, but unless the money is locked away in something like a 401k that penalizes early withdrawal, it isn't going to work.
And realistically, the percentage ought to be closer to 10%
Isn't this what the Social Security System was supposed to be for. If there is one thing I have learned, it's don't ever believe that the government has any more of a clue about how to handle your money than you do. Trust me, give the government more and the rich will find a way to get richer while the average American will get poorer. I think, education and tighter lending standards are the only valid option. Keep the government away from my money. Since I had to earn it, I'm sure I will respect it more.
the only way the NWO can bring down the world is to first take down the american people thru bankruptsy. they believe that if people are more worried about how to shelter, clothe, and feed their family, they will be less inclined to fight. OUR CORRUPT GOVERNMENT AND THE NWO ARE WRONG!
Finally people start understand mechanics of this fabricating census of reality,Bankers are running the show,
Global financial elite put almost every country in the verge of bankruptcy in order to control and manipulate.
if we get rid of them almost all world problems will be solve.US interest is like1,4 billion a day,they ruin Europe
common people stand up and make them accountable,how the group of few can hold whole world money
This money don't even exist imagine they loan money they dont have and charge this usury
Wake up people and rise up above this fear,illusion existence tthey purposely create,
In order to effectively fulfill their roles the negative elite have o believe in what they are doing,they enjoy the money,power
and feeling that they are smarter than rest of us thats justify why they can be above suffering world
In the end they will match what they
von hettlingen I find you to be the soundest person in this conversation. People's spending behavior is shaped by the society they grow and live in. That is their base of comparison which set the limit of the necessities and over spending. I was educated in an American school in Turkey and worked in some USA firms (namely AMC as one of them). I also lived and founded a company in England which has considerably less social services than some northern European countries and Benelux. While USA is totally nill on government services northern countries may overdo social services. But your point on the social behavior of European people is to the point. Europian people would have to be realy be in deep trouble before they apply for social help. And just having applied in their past is a trauma for them. Europe and USA have different value systems. Well different foundations and history. I am not an expert on the subject but my humble perspective is that while Europe values past record and aims to create a clean record anybody with a lot of dollars can do anything in USA. As sadly filmed on "Once Upon a Time in America". Both USA and EU should change and exchange their better points. Otherwise the behaviour they display is not something to be admired.
Oh right, the banks did make a comfortable sum out of this crises. That is a matter of demand and supply and is somewhat called trade. If it is not regulated by laws. Well that brings us to law making....
According to our Federal Reserve, we don't want folks to save thus we offer no interest rate close to the inflation rate. We have to get this country going again. Don't save spend spend. The FED has a stated goal of reducing our dollar value another 30% over the next 30 years. If you are saving in US currency you are saving in a wasting asset. Corn or wheat might be better choices if you can keep the rats out of it. Folks get a clue! We don't need the banks to offer free accounts to the poor. First we need solid money not wasting currency
Saving would necesarily be difficult for Americans since we invented window shopping, mass marketing, and a culture that encourages consumption.
Denial, is not a respected word in the American lexicon.
That's no entirely fair. I try to save. I have a full time salaried job (40-50 hours) that requires a Master's degree and I barely make it most months with just rent (modest apt), food (never eat at restaurants), and student loans (my only source of debt). Prices on most things have skyrocketed while the wages for those at or below the median income have been stagnant or in some industries fallen.
Even with insurance if my wife or I get seriously sick or injured, we'll be bankrupt.
I want a home, but I am never going to be able to afford one no matter how hard I work.
It is pretty hard to save when your job barely meets the basics.
believe it or not a masters degree – unless it's technical – does not get you much so youmust have made poor choices in either your major and or the loans you took out to secure that education. stop whining. sorry.
NH GUY: must be nice to have all the answers in life. He needs the masters for his job, so not an incorrect choice there, and loans are necessary if you're not a trust fund baby. You must be delightful to be around.
Generally if someone can afford a decent rent, they are not that far off from affording a home. It doesn't have to be a house, start with a small condo and pay mortgage payments instead of rent. That money spent actually goes to increasing your wealth rather than just throwing it away for one month of shelter. Over time as your equity increases you can sell the condo and move up to something a little bigger. I have friends that can afford a mortgage but they would rather just pay rent so they don't have to deal with repairs. That's the most shortsighted view on homeownership I can imagine.
I agree. We are a hard working couple, and feel the same way. We have been working all our life, and we were just starting to get ahead then when the housing crisis happened and all the job loss – we have been rotating jobs from so many companies folding. Now, We are stuck with low waged jobs – both overly worked in both jobs – with student loans, gas prices going up, food going up, and basic needs..we can not afford to save. Every time we save – an emergancy happens like car brakes down or soemthing needs replacing or repairing..most americans are in this situation and this article is not really fair..minimum wage has not gone up but eveything else is..even electricty just went up 20$ more a month..this all adds up to NO SAVINGS
@chris. thats what everyone told me 10 years ago so i bought a modest 2 bedroom condo for just over 110k. I owe aboutr 88k for it today and its worth about 30k if i am lucky. Should have rented for a few more years. Maybe i would have been throwing that money away but at least i could have moved. Now i am stuck in a place that is too small for my family. Buy a trailor or rent until you have enough down payment to buy what you want
May I make a suggestion to you and your wife regarding home ownership...I do not know where you live, but if you live in a city with older neighborhoods, consider buying in a "fringe area". Not the best, not the worst. Often, if people move in and improve the homes, others join and do so also. The neighborhood improves, lifting home values eventually. The key is to look carefully at the neighborhood. You have to feel comfortable day & night, and it should be relatively close, a half hour max, to cultural venues, restaurants, shops, highways, etc. Most of the homes should have architectural points of interest. The properties should be at least 1/2 owner/occupant. Generally the neighborhoods that revive have these characteristics, and make a good investment in home ownership. You can buy inexpensively, probably spending the same that you spend on rent, and with a little work have a home you are proud of and can enjoy.
There are a lot of luxuries that we believe are necessities because it is so inconvenient without them. Besides who uses many of these luxuries anyway when you wake up, work, eat, work, eat, sleep, work, eat, work, eat, sleep, etc. no time for friends, no time for love, just work, exhaustion and sleep. But importantly, you have a place to sleep protected from the elements, you have food, you have clothes. That's all you need to be happy.
@ Chris, you sure took in the propaganda. Home ownership was pushed after WWII to increase city and state coffers. They needed people to pay property taxes and stabilize communities. The truth is that home ownership is a black hole of debt and financial burden. Unless you are cashing in at the height of a bubble, paying 3x a house's worth (interest over 30 years) insurance, taxes, repairs, etc,. buying a home is a loser move, not to mention you're stuck if you can't sell. Hubby and I have been married 25 years and have no interest in home ownership. All the interest, taxes, insurance, repair money we save is sitting in bonds, gold, and treasury securities. I'd much rather have cash and rent upscale. This comes from a person with an economics degree.
To Chris,you make conclusion on a very lineal way and that is a mistake in it's self,there is no such thing as linearity in life that is the nature of the world problem,that it's way the saving is the ideal way to absorb the inn regularity of the creation,just like harvesting corn /wheat or any other product that it's only available for a limited time ,the biggest problem in our society is that the capitalist vulture have created a culture of consumerism with a fake mathematic system, and that as created a false sense of security for the masses with no bad consequences to them(the capitalist). we can go on this for a long time but on less we start to do the right thing and not just talking about it's a waste of time. here are some suggestion of how to go to attempt the repair this mess, get Hollywood out of our life,limit one tv per family and rotate the program to watch one day per family member,limit the news to one our a day,legalize vote by internet on any issue and may the majority prevail (not some professional specimen that carry on the agenda that is in the interesting of the few) be part of civic activity in your local town hall,legalize apprendiship on 13 year old for 4 hour a day with no added liability to the shop keeper,open vocational school on every town,limit the operation of bar /discotec/and or sale of alcohol to 11 o clock from monday to friday,ban the COMMERCE and stop running the legal system like a business,and among other thing STOP TELLING OTHER COUNTRY WATT TO DO, THE BEST THING TO DO IS ,BUY WATT THEY SALE ,SALE WATT THEY NEED ,instead of killing our young people and living in fear as we are....
I agree, our consumption/materialism based culture makes it nearly impossible for the average person to save or to want to save. And really the cause of this culture is allowing private businesses free rein on expressing their own greed by increasing their income and profits without regard to costs to the society being victimized. Strong word, but correct. The biggest single thing we could do is educate in high school personal financial matters as the article suggests. Beyond that, rein in the "free market" taking advantage of the average consumer. Yes, that would mean more government and not less. (Foxes don't make good hen house guards.)
Well, it's an inevitable fact that 70% of the US economy is based on consumer consumption. There's no easy way around this. There has to be a turnover to keep the wheels rolling – or else they come off, as we've seen lately.
The key to saving is fairly simple: you have to do it. The best way is to contribute to a 401k program if it's available; deposits are automatic, you get a tax break as a result, and withdrawal is difficult and expensive. Or, set up direct deposit, sending some fixed portion of your paycheck into a special account that you never access. In fact, you should make it physically difficult to access if possible. The point is, once you start saving, you will get used to living on the amount of money you have left over. As someone once said, you have to pay yourself first – through savings – then pay everyone else.
American has the most commercial that I known. Try watching one hour of TV movie will end up 2 hours to finish. This is due to all these commercial included in the movie. Some of these commercial repeat so many times that people will brain washed into buy anything that on the screen. American's annually super bowl is not about the game but more likely about how great commercials. These are the constructed engine that make American to spend! spend ! and nothing but spend!
"Encouraging" consumption doesn't make one consume. It is each and every one of us who has the personal decision of what we buy, or don't buy, and no one else. The lack of personal responsibility, blaming the other guy (or society) is an easy out. Going along with something that is wrong (like buying things we can't afford) just because there are other people who don't have a clue doing it, is no better than a herd of cows aimlessly following each other around. So many people have lost the ability to think for themselves, control their own lives, have their own principles, and not simply go along with what others say or do.
Very well said, just because the retail industry has a BIG sale every other weekend does not mean I need to go buy something which I already have enough of (clothes, shoes, gadgets etc..). Also home ownership can also be fine if you do a few things right
1) Pay at least 20% down.
2) Keep the term as low as possible ( 15 or 10 years as opposed to 30 years) when you compare the total interest paid through the term it will amaze you.
3) Pay mortgage weekly as opposed to monthly doing that alone will shave off 2.5 years off your term.
4) Buy only the house for which you pay max 25 % of your monthly income.
5) The house you buy should not need too many upgrades / projects.
If anyone can voice a comment, let alone a solution, on that than he/she can find a solution to the EURO problem. But can humbly say that you must also nourish your slaves so that you will not lose your investment. It is not realy good management to forget about repairing and maintenance costs. And off course wear and tear. The problem is that the world is all taken already. There is only one place to go and that is Africa. A foothold thereabouts would not be so bad.
Gees! USA is trying to understand Europe. Well other than tourists...This must be a dream. Gooodmorning America. Wellcome to the world.
Good morning Europe – welcome to reality! It doesn't matter how much you have in savings as an individual when your country is nearly bankrupt.
Actually it does matter. Read the article properly.
Because Europe is one country right? not 50 different countries with 50 different economies ranging in shape from far healthier than the US to practically bankrupt right.
Why bother saving with rates so low. I make extra payments on my 4.125% mortgage rate and get 10 times the return I'd get at a bank.
Paying down your mortgage is a form of savings and in your case a very good one. Hopefully you have a emergency fund because you can never know when you will need it.
Glad someone else is in the boat I'm in. I can't justify putting $200 a month into a savings account that pays 0.1% interest when I could use that money to pay down my mortgage and student loans, which are both 4-5%. Plus, that portion that goes towards interest is tax-deductable, not so with money deposited in a normal savings acct.
JT – While paying down debt is prudent if one has the extra cash to so your example is not 100% accurate. The extra payments to mortgage debt and student loans will go towards reducing principal. Those extra payments will not increase your tax deductions (deducting the interest on home mortgage or student loans) as they are "principal payments". While they bring down your loan balance they are not increasing your tax deductions. Also, w/ the interest deduction your 5% loan depending on your income bracket results in a 3.5% +/- actual interest rate. These payments are nonetheless tempting especially w/ low savings and/or money market accounts paying the rates that they are. There are other relatively safe investments that can return greater than 3.5% returns. The Municipal Bond market offers very healthy returns and also has a tax free return if you buy bonds in your own state. You can buy them in funds rather than individual bonds so it makes them easier to access. I however, am focused on debt reduction myself but have researched my investment options when I have the extra disposable cash to do so.
Very good point!
Paying off loans definitely counts as saving. Your return is the savings on your loan interest rate – which will always be higher than the rate offered in a savings account. In fact, I've never met a financial adviser who DIDN'T tell people that the first step toward financial security is paying off their outstanding loans. In the case of a house, you're also building equity, so you win on two fronts at once.
From what I understand it doesnt matter if you pay off your loans early, the interest is already factored into the total amount. Whether you pay it month to month or pay it off early you still pay the same amount. At least that's how it is with my student and car loans.
RD: That's simply not true for most home loans in the U.S. All loans are simple interest, and any competent loan has no penalty for early payment.
Simply interest loans calculate interest each day, by multiplying the daily rate (1/365th of the annual rate) by the principal balance. The day's interest is added to the outstanding interest, which should be paid off fully each month if payments are made on time, and there's never compounding (interest on the interest).
If you balance on day 2670 of your loan is exactly the same as your original payment schedule said it would be, then the interest you'll be charged that day is exactly as predicted. HOWEVER, if you have made any (even one) extra payment to principle, then your balance will be lower than predicted, and your interest on that day (and every day) will be slightly lower than predicted. Make small extra payments every month and you'll end up paying far less overall for your house.
This isn't that difficult to track if you own a home and make payments. I use a spreadsheet each month were I type in the balance from my statement. Each month I can see that the amount paid to principle goes up, the amount paid to outstanding interest goes down, and (if I make an extra payment to principle) there's a bigger and permanent drop in the amount paid to interest. That said, refinancing to a 15-year mortgage with a lower rate was a much better solution for me, and in five years after I've done that I never felt the need to make an extra payment to principle because my balance is dropping so rapidly.
In short – if the paperwork says there's a penalty for early payment, walk away! Otherwise, extra payments WILL reduce the cost of your house!
Paying off loans is a great way to "save", but make sure you have 3 months of cash or another liquid asset. If you or your wife lose your job or have medical troubles, the bank won't let you "take back" those extra payments to principle. But with some cash, you can cover minimum payments while you look for a job or pay your unexpected big bills. And having some cash or otherwise liquid assets means you don't have to go get an emergency unsecured loan at 10+ percent, which ruins all your savings.
Our credit union pays 1.2% on checking balances if we make a minimum number of credit transactions with our debit card each month. Then we have some money in stocks directly (not through our 401k / IRAs) so that I can sell the stock if I need more money quickly.
Just few minites back I sended my post but not displayed in comments colomn .ITS NOT GOOD.
Why save when the interest rate is near ZERO? I can remember as a kid getting 4-5% on my saving account and watching it grow.
Absolutely, I had a golden pass savings book that got about 5%, and we were told the importance of savings and compound interest. I wonder how many years of compounding are needed with my current 0.1% interest rate from a bank and whether kids find that interesting to focus on these days.
Absolutely,
When I was in grade school, we bought savings bonds. buying stamps for a booklet.. or you could save ina bank.. 5%..
then later when inflation went through the roof, banks responded with cutting iterest rates to practically nil.. now if you save you get 0.1% month, whihc is far less than inflation.. you aren't saving, you are losing money.
Buy property.. pay your mortgage or other interest bearing debts off first. That the only way that makes sense.
Because even with no return, you're building up a financial buffer against future needs. Note also that there are several ways to save that don't involve depositing money in a savings account. First and foremost: accelerate debt payments. Paying off credit card balances increases your net worth faster than ANY other activity, dollar for dollar. Making additional payments against your mortgage is also a good idea. Both provide enormous, tangible returns quickly, and definitely count as saving.
It is incorrect to say that culture won't influence the Saving habits. it does. It is in Asian Culture that always Savings comes first.
I agree with you that it has to do with the culture, but maybe that's not necessarily tied to continents. Asians may have saved more so far. But do you think they will keep saving the same way? I don't think so. Given a choice between saving and spending, that decision would be most influenced by what you've seen around you - the culture in a family or something close to a person–e.g., what you saw while you were growing up. TV and Internet have contributed big in spreading materialism and the culture of spending beyond the boundaries of family and physical neighborhood. Look how much the size of newer homes gotten bigger, especially in the kitchen area–thanks to HGTV. It gives an impression that having to have a big kitchen with all stainless steel appliances, double ovens, and etc. seems no brainer even when the home owner never cooks. With so many people have now grown up seeing their parents, neighbors, and these virtual neighbors on TV and internet easily buying something they cannot comfortably afford had it not been the help of easy credit, and so much of materialism, we have a huge spending momentum already built up. It'd take a long while, even if we try hard to build up a culture of saving to cancel out the spending momentum and eventually see some visible savings.
A lot of people copy what they see others do. The US government spends more than it has, and borrows more without ever being really interested in paying it back. So are you surprised that others do that also?
Furthermore, why save if you know there will come a point in time that the government will start taking it away from you? You can count on it that as soon as Dear Leader gets bought again for the next four years that he'll start talking about 'means testing' for social security and medicare: if you saved your whole life to afford a quiet and safe retirement life there's nothing wrong with using YOUR money to give to people who didn't give a damn and knew that for the right vote they would get to live in easy street.
Because they think the govt. will take care of them. Eliminate that and people will go back to work and save.
Read the whole article. One of the points discussed is the fact that savings rates are higher in European countries, most of which have more of a social safety net.
1) – savings amounts are low because at .25% why bother? The FED manipulates rates to make borrowing easy and to frustrate savings. Stop thinking the State wants us to save – they don't.
2) Anyone can access a credit union. Having the goverment force banks to change deposits is unnecessary. Usually minimum amount required to open an account is $5.00
3) Most Americans are addicted to shopping.
4) Wait until the student loan fiasco "stuff" hits the fan. No one FORCES anyone to pursue a degree for $100,000+ to land a job making $29,000. Read the book Debt Free U - it will save you and your kids alot of pain and heartache.
I agree that for many people, refusing to borrow money for an education is a wise step. On my daughter's 16th birthday, I presented her with small, used car. The next day, she went out and got a job working in retail. When it came time for her to go to college, she eschewed the normal college route of borrowing money. She kept on working – when one job ended she immediately went out and found another (3 days was the longest she was ever unemployed). She started to college when she graduated from high school, but never borrowed any money for tuition or fees. We gave her a total of $4500 assistance (this was in the mid-90s), and all the rest she paid herself. She got her degree from a community college – lots of savings there – and has had three good jobs since then – each one paid more than the last one. During her first six years out of college, she went back to night school and earned a paralegal certificate. She has never had any college debt and is currently earning more than most of the kids in her class who went into debt and attended four-year schools full time. Now, you Wall Street Occupier babies, why don't you do the same?
Why did you have to lend her $4500? Sounds like she wasn't motivated enough.
My situation is similar to your daughter. I wanted to go straight to the university and was accepted, but when I realized the only way I could afford it was student loans, I opted to live at home and enroll at community college instead. I started working when I was 13, and like your daughter, if one job ended, it was easy to find another in those days. When I was in community college, I worked 3 jobs to pay my tuition, pay for my transportation and maintenance cost on an old beater car, and my parents (who were not in the situation to be able to help me out) charged me rent each month. In my case, I was only able to go to school part-time, and it took me 4 yrs to get an AA degree. When I finally enrolled at university, I still lived with parents and commuted. I wanted to finish in less time though, so I cut back to one part-time job and took out student loans to help me cover tuition & books. When I graduated, I owed $5500. In my first professional job, I earned around $19,000/yr, and my first and foremost goal was to pay off my student loan. I paid $300/month untl it was paid off. Then, I started saving toward a new car, and eventually, moving out to get my own apartment. My parents didn't help me in the form of cash, but by letting me stay at home for so many years, they actually helped me a lot. Even paying them rent every month...it was still cheaper than renting an apartment. Those were the good old days though. Today's youth are woefully unemployed; college tuition ans expenses are way up, and the cost of everything from gas to food is much higher these days I think. I don't know if teenagers today could make this same model work for them or not. I have a 14 year old daughter, so I'll find out in a few years.
There's nothing wrong with borrowing money to go to school provided that you're going to school to obtain a degree that will be worth something when you finish. Education is an investment but just like any other investment you have to consider the risk and the return.
Spending 100k to get an engineering degree is going to pay out dividends more often than not. Doing the same for an Philosophy degree may not get you the same return.
I'd like to point out that some of us get "useless" degrees because we enjoy educating ourselves in a field we actually have passion and interest in – knowing full well it will not lead to a life of luxury and high earning – and still manage to pay off our student loans. I did, and so did most people I know. I also know plenty of law and business students who not only can't get a job but have $100K+ in debt.
Its about accepting responsibility for what you want to do. Getting a degree in philosophy or music sure is stupid if you don't think about how to put food on your plate. Its even worse when those same people then whine and complain about not being able to support themselves in their chosen field.
Then there are those who go into a field they want, and know and accept the consequences. For me anyway, it is at least 100K+ times better doing that than getting a business degree and being miserable with my life. Instead I worked hard, loved what I studied, and when I graduated I worked hard and payed off my loans. Continued to work hard, found a decent, regular 9-5 job, and live my life pursing my passion that I obtained a degree in. I have no regrets and would never do anything differently.
There's no reason college should even be remotely as expensive as it is. The problem is that people taking out loans are enabling the universities to drive up the cost, but universities driving up the cost is what's causing people to take out loans. It's a vicious cycle and it won't stop unless someone (i.e., the government) steps in and makes it stop.
The other issue is that as colleges have been giving away more "free" educations, the money had to come from somewhere. Those that actually paid, paid for themselves as well as those that received the "free" education.
lot's of misconceptions by the posters on the following issues:
1. Economically speaking, reducing debt is the same thing as saving. Other than interest rate differences, having $1000 in debt and $0 in savings is the same thing as having $1200 in debt and $200 in savings.
2. Saving doesn't necessarily imply putting your investment into some low-yielding fixed income asset (e.g., "savings account"). You're also saving if you invest your disposable capital into equities, real estate, your brother-in-law's business, etc.
Yes, with the caveat that you do need to have a reasonable amount of easily accessible cash (at LEAST 3 months' living expenses) to cushion you from emergencies. Otherwise, the next time your car breaks down or you have to cover out-of-pocket expenses for a minor medical issue, most people will have little choice but to go into more debt.
Having savings in cash provides liquidity, which your other examples do not. Since a recent poll suggests that half of Americans couldn't get their hands on $1,000 in 30 days, this is somthing that a lot of people would do well to consider.
What this article overlooks, is that from the 1980's on America's income has been redistributed away from the lower 99%, who made 91% of America's income pre-Reagan, to the top 1%, leaving America's lower 99% with 76% of America's income by the end of the Bush years. Americans did three things to cope with lowering after-inflation incomes: 1) it became standard for both spouses to work most of the time. When that wasn't enough, 2) Americans began to work longer average hours. When that wasn't enough, 3) Americans began to run up credit card and home equity debt. Unless unions continue to grow, as they did in 2011, we'll soon be able to kiss goodbye to the Middle Class than unions built.
Mick, I agree with you. Read the book, esp. chapter 11, on the role of growing income equality. Sheldon Garon, Beyond Our Means: Why America Spends While the World Saves
Completely agree. Most people dont talk about how BOTH PARENTS ARE WORKING PARENTS THESE DAYS..and that is not making ends meet on DOUBLE INCOMES...it worse then people think..
If the unions do not grow, or the working people do not gain some leverage otherwise, there is another way out of this. But, it may not be the preferred option.
July 14,1789
Thanks for this article. Obviously we know that Americans aren't saving enough and a lot of that has to do with the amount of personal debt the average family carries. But I'm so glad that you mentioned the skyrocketing healthcare and education costs as a factor AS WELL AS over reliance on home equity lines of credit. If we want to change there has to be a personal shift in mindset; Americans have to be able to resist the marketing monster that we've created as well as start pushing for some policy changes. Financial inclusion would be a great start.
This story did not touch on the main reason Americans are poor savers. No real incentive. You are lucky to get a fraction of a percent return on your money at American banks. If inflation is only three percent, your going to see an erosion of your savings of at least 2.5% per year. You will also be taxed on that slim to none return by the federal government and possibly the state. My 401 still has not reached the level it was in 1999. There have been a few good years but mostly lack luster returns. When I choose to spend today rather than save for tomorrow, there is a thought process I go through. I know I can buy more with my money today than I can tomorrow. It's more now or less later. Until our banking system starts paying at least the inflation rate on our money, Americans will always be poor savers.
Completely agree.
Investing and saving are two different things. I save money so if something happens I can make house payments, pay medical bills, replace a broken car, take a trip, help friends and family, donate to good causes, etc. Sure I'd like to earn a return, but for purposes of savings, an investment return isn't required, only that your fees don't exceed any returns and dilute your savings.
If I have enough saved, then I might take a portion and invest it with the plan to make it grow more than my savings. But that gets into risking that money.
"Investing and saving are two different things." You are thinking in your terms" For millions and millions of Americans, they are one and the same. They simply can't afford anything beyond a small savings account. Their everyday existence requires that they raid their savings often. They might try to save more if not for the fact that their money setting in savings is in effect evaporating. Inflation is robbing their meager savings to where tomorrow they will have less than today. Banks are greedy as hell when it comes to credit card interest and stingy as hell when they pay out. This is why Americans are poor savers.
There are many ways to save. You aren't limited to putting money into a savings account. In fact, the fastest way to build net worth, dollar for dollar, is to pay off outstanding debt, starting with credit card balances. You get an effective return equal to the interest rate charged by the credit card companies when you do this. Making accelerated mortgage payments likewise yields a return equal to your mortgage rate, and also builds tangible equity. And if you've managed to clear all your debt, simply having a pile of money, even if it isn't earning interest, reduces a lot of life's pressures and buffers you against the unexpected.
Why shouldn't we enjoy life with every dime we can get (from own income and loans)? Politicians never have failed to take care of us when it is election time. This is the best of our democracy system, politicians promise to legislate and pass laws to spend money on certain groups and these groups would vote for them. You are witnessing legal bribery / corruption in a different dimension.
"...we hear politicians across the political spectrum sounding the alarm about America’s national debt."
Across the political spectrum? Since 2007 we have heard precious little from the Democrats about more disciplined fiscal spending. Heck, the Dems and their minions demonized members of the Tea Party whose sole focus was fiscal responsibility. In addition, where are all the Dems speaking out against the reckless spending and the record deficits/debt created by the Obama administration????
I really wish Zakaria would get his facts straight.
Let's face it, we're a capitalistic and a materialistic society driven by supply and demand! Always has been and always will be! And that has been our culture and nature ever since the turn of the 20th century. And for most Americans during the post WWII era, living the American Dream wasn't just about having a suburban home, a stable income and a family but about having all the material things money can buy. That is who we are as Americans, always have and always will be!
And I don't think its fair to compare consumption in America to consumption in Europe or other countries around the world simply because we are the biggest capitalistic, manufacturing and industrial society in the world and again, where supply meets demands, Americans from day one have always felt the urge to spend and possess the latest household gadget whether it was a microwave, a computer a dishwasher or what have you. Its who we are and always will be!
Supply and demand is not the issue. Americans are not any more materialistic then the rest of the world..The issue is less jobs, both men and women HAVING TO WORK , Higher cost of living, more bills, lower wages...big business's taking over small ones and pushing out a lot of american workers..lack of UNIONS, Lack of regulation on what compaines are allowed to do, lack of regulation on banks on what they are allowed to make money on, lack of ways to obtain Loans over credit..
Most Americans felt they had to keep up with the Joneses. Mr. Jones lost his job of 20 years when much of his company's went offshore.
The Joneses shad to sell d two of their three cars at a loss–two of which were just over a year old and were financed on six-year loans–to make the house payment. It wasn't enough because Mrs. Jones' job didn't pay adequately to make the house payment and pay all the bills, particularly the credit cards, and the bank foreclosed on the Jones homestead.
The Joneses moved to a cheaper rental and began using up their minimal savings to live. Shortly, they were foced into bankruptcy as Mr. Jones fell ill and the family couldn't pay the thousands of dollars in medical bills; they had long since given up their medical insurance because Mrs. Jones could no longer afford the monthly insurance premium of $392 out of her modest paycheck.
So goes the 'American dream'.
This one is pretty simple. Mr Jones was living way beyond his means. He didn't need 3 cars, 2 of them new, and couldn't afford it. A six year loan on a car? Bad decision. Mr Jones' house was too big. You don't need a separate large room for every kid with phones and tvs in every room and a bathroom for every room and a 3 car garage etc. Mr Jones could have gotten a house half as big and SAVED. He could have gotten 2 cars and both used and SAVED. This isn't an economic problem, it's Mr Jones making the decision to spend all or more of his income and not prepare for emergencies or the future.
Your point, sir, is well made.
I went to s Tec school. I own my own home including 42 acres of land, I owe no money and I put 35% of my pay in savings
I bet your single..and lived at home for quite a while while going to school..most people have different lifestyles and some will be able to pull it all togehter..but not everyone can and will go to Tec school..not everyone can be a tec and not everyone is designed to do exactly what you did..but glad to hear someone is doing well..maybe you can create a few jobs for others down the road..
Because liberal democrats think that making a better now and kicking the can down the road gives them votes. Obama promised in multiple 2009 speeches that he was going to cut the debt in half, but he's done the opposite. Obama is doing what ever social engineering that it possible (some outside of his power) to gain votes. This birth control issue (free my ***) is a perfect example. How making available transformed into free is Obamas' magic.
Wages haven't gone up since the last '70s, but housing, college, etc. has. Families have sent a second person in the workforce, gotten second and third jobs, and yes, taken out loans to keep pretending they can live at the level they could before unions were destroyed.
All this bickering and no one has offered a solution. What's the solution????
It is true that there is a huge disparity between the rich and poor in this country. But most 'poor' people in America have shelter, cars, cellphones, cable tv, electricity, and food. Compare that to poor people in China, India, Africa, etc. Many of the 'Occupy Wallstreet' crowd might as well bring a hat to their rally's. They are simply looking for a handout.
The solution is individual responsibility. We should be teaching basic finance classes starting in grade school through high school. Many parents don't have the knowledge to teach their kids financial responsibility (as evidenced by their own financial state). Teach the kids how to balance a checkbook, how interest works, the advantages of living within their means, the pro's and con's of credit cards. Then let them make their own decision when the are adults. If you want to save, live within your means and stay out of debt, that's great. If you decide you want to buy everything on credit and get a house with 5% down payment, that's fine too, just don't come on CNN's message board, or run out to the local city park with a hand-painted sign and complain about how rich people are keeping you down and you deserve to have what they have.
Solution is to pass a low requiring overseas factories that produce products for the US to meet US minimum wage and OSHA worker protection standards. Good paying jobs will pour back into this country if we do that.
Sorry typo, meant to say pass a "law" not "low"
America is finished! We love to give free money away; for example, the African nation of Ghana, with funding from the Millennium Challenge Corporation, has completed the George W. Bush Motorway with partial taxpayer dollars and, of course, borrowed money from China. But here's what makes it all fantastical, the MCC gives compacts (Ghana received $547 million) to nations if they meet certain "indicators," a few being "Government Effectiveness," "Control of Corruption," "Inflation," "Fiscal Policy," and the one all those now unemployed oilman would love under the, "Investing in People" category, "Natural Resource Management." Oh yes, we're effective at doling taxpayers money out to far-flung nations. We're good at controlling corruption. Say hi to Nancy and John. We're good at controlling inflation: Print more money! (Great "Fiscal Policy") It's only a matter of time that we take Rome's offer to create a "world public authority."
Americans don't save because interest rates for "savings" are at zero. There is no penalty for holding onto cash when saving isn't rewarded.
And interest rates are at zero because we save too much. Or is that "speculate"? Any commodity ( like rental money ) that is in vast oversupply compared to demand will have its cost drop.
This has happened because the value of personal income has stagnated. While the corporate masters make vastly more than they did before, the average person makes effectively far less. Until we get rid of both political parties that are owned utterly and totally by the corporations, this will not change.
Americans don't save because they can't. Only the rich are able to save. The rest of the world, however, will soon take note of the fact that all the world's economic crises began with the United States and stop doing business with them. And since all of the world's still-profitable multinationals are quietly moving their world headquarters to Europe, including the combined naval and air forces of the US and Canada. All of the world's most important economic and military assets concentrated on one continent. That hasn't happened in the longest time! If you thought the Americans were greedy and arrogant, wait until you see what's coming.
Why do you believe only the rich are able to save? I am middle class. My wife and I, along with most of our friends and relatives are able to save money. People who don't live within their means have a harder time saving because they end up getting caught up in a cycle of debt. The answer isn't even to not get in debt, the answer is to take individual responsibility for yourself. I live in a country where most so-called 'poor' people have access to cable tv and cellphones. Ditch the extras, get out of debt, and then if you can afford it, go ahead and use your hard earned money to buy not what you want, but what you can afford.
The problem with the wealth redistribution going from the lower 90% (of the population) to the top 10% is that the 10% will not be using goods or services enough to float the economy as the other 90% cuts back. basic supply and demand. When your supply of funds (or even credit) shrinks, you demand less goods and services. People need to MAKE money to SPEND money. people making less spend less. Less people shopping leads to less jobs. The blame doesn't rest with one group or party and it will take more than pointing fingers to fix this.
Of course, that isn't to imply the redistribution was fair or ethical. This is but one component of the mess.
Financial education in schools would be a real plus. People that are financially literate I believe make better choices. I have two children. One is pretty good, saves and is frugal. The other one can't save a dime. If she has a dollar she searches for something to buy that costs a dollar, and then complains she has no money when there is something substantial she really wants.
All of this talk that people's inability to save is societies fault, the governments fault, the banks fault is mostly bunk. Sure there are some instances where good hardworking folks got in trouble due to job loss, illness etc, but most just didn't save or think of the future.
I see this every day. I went to my kids high school. The place was filled with families I know don't make a lot of money. They were all talking on Iphones and smartphone, checking email and texting. Their families cell phone bill is probably $200.00 / month. That is an unneccesary luxury. Most employers issue cell phones for sales people that need them for work etc. Basic cell phones without data etc are not that expensive for emergencies. Combine that with cable TV and many "working class" families have a telecom expense of $300.00 / month.
This is just an example, but I know that people that complain about how little they have compared to someone else have far more "stuff" than most families had in the 60's.
It used to be a "second mortgage" had a stigma attached to it. Having one meant you couldn't manage your bills. Bank's realized this and renamed them "Home Equity Loans". Nothing caused more damage to american's balnce sheets than the home equity loan.
I'm sure some of it comes from the fact that those services you mention weren't nearly as expensive a decade ago as they are now. If you would have told me in 2002 that I would be paying $160/mo for cable I would have expected it to come with every channel known to man, not just the basic package + bottom tier internet (ironically enough the same speed as in 2002 but now more $$)
The rest of the world isn't at war constantly like we are. If we had a normal military budget, we might be able to actually balance our nation's budget. Hell if we taxed people fairly we might be able to even pay down some of the debt. Not going to happen, though.
Savings rates are at/near zero because borrowing rates are at extremely low rates..............Some good ideas being floated out here: (1) Financial Education (should be part of all levels of school curriculum); (2) Pay down debt; (3) Have a Rainy Day Fund and (4) Live below your means (the further you can live below your means – and still be happy – the better off you will be)
All great ideas and none of them require any involvement of the govt.
I used to bank with Bank of America and Wells Fargo. When the **** hit the fan a few years ago, these banks immediately turned to my accounts to take more and more from me in the way of fees, etc. I closed my accounts, and did everything possible to stick it back to the banks. There wasn't a lot I could do, but when I opened accounts at two credit unions, I couldn't believe the difference. First of all, there are no fees, none at all (unless you overdraw your account). Second, at one of the credit unions, I was given the option to set up a $500 savings account yielding 5% annually. I took this option, and have added to the account every time I get the chance. With no fees, it is much easier to save, even if I just put the small amount of money into my savings account that I used to pay in banking fees. I chose credit unions that were a part of a national credit union cooperative, and therefore can make deposits or withdrawals to and from my accounts at convenient locations located countrywide. I don't even use paper checks at one of the credit unions, as their online banking is free, and I can write checks from there. I use their debit card for charges, and have cancelled all my credit cards, eliminating those fees as well. I figure that I save well over $3000 a year in money I used to pay to the banks and credit card companies, and if I can consistently put this money into a savings account, it is turning me into a saver. I've read that you need to study and practice something for about 8,000 – 10,000 hours before you are considered an expert at it, and I'm about a third of the way through that learning curve when it comes to savings, but I can tell you that opting out of the banking and credit card system is the best financial decision I have ever made. At this point, I don't think I would consider buying a house unless I could pay all cash for it.
I save almost everything and spend very little. Just what I need. All bills are paid off promptly and nothing is owed.
Didn't I see you in punxy a couple weeks ago?
The government, through taxes, laws, programs and regulations determines the extent people save or borrow and how they invest. Get rid of our SS, Medicare, welfare programs and targeted taxes to encourage education and personal financial responsibility. All our financial bubbles have been caused, not by some greedy businessmen, but by an elected officials (government) passing laws or regulation to encourage people to behave a desired way. Sub-prime mortgages, the result of Clinton and his congress to make house loans available to those it shouldn't.
I have a simple solution. I'll cut capital gains taxes and then you all will have plenty of money in the bank. How does that work? I am a successful business man.
While it might seem that the problem lies with how societal welfare and the welfare state is structure, it flies a bit counter to some of the reality. First and foremost, the United States seems to operate in a continual state of 'instant gratification'. Why put off buying something you WANT but can't afford... just finance it! Just look at the commercials put out through the media. Parents buy their children things.. just to shut them up! We end up teaching our children through our actions that instant gratification is good! The end result is an adult that wants instant gratification and does not want to think about the consequences of pursuing their instant gratification. Saving is counter to instant gratification.. It can actually be called 'delayed gratification'.
the biggest mover of savings or spending (remember guns or butter under lbj, the texas criminal) is the monetary and fiscal policy of the goverenment. any one individual is an ant on the surface of the sun in comparison.
If we were still making our own stuff in this country, consumer spending wouldn't be a problem because that money would all be going back to Americans. Ever since the rich decided that they wanted billions instead of millions and started outsourcing labor to get it pennies on the dollar, our money's been flowing out of this country, with the rest of it flowing into the trust funds of the rich. Bring manufacturing back to this country.
Serously? Jobs go overseas because Americans choose to buy a less expensive product made overseas than a more expensive product made here. The company that doesn't move production to a location that allows for a lower cost product goes out of business.
But it's cheaper to produce elesewhere because other countries don't give ther people proper services and infrastructure. We should not allow foreign goods in without tariffs to make it a level playing field. Then goods will be made here. We are essentially enslaving third-world people by buying goods made through slave wages.
How can I possible afford to save? I need a new iPhone. And I need a bigger house. And my car is like 2 yrs old. And I need to go out to eat tonight.
The govt is in debt up to their ears, why shouldn't I be?
One thing that existed and was popular in the 1970's were the incentives given by banks to save to the public. American's want rewarded for using a service. Banks used to give material rewards to customers who opened a Christmas Club or savings account. Those 4 season tv trays, that kitchen tool, or nice picture frame. I worked in a bank and remember the cars lining up in drive throughs to open accounts to get their free gifts and returning the next year to do it again. Same way when they saved a certain amount and got a gift. Give Americans an award and they will save again, if they can.
I find it ridiculous to say people don't save because banks don't take small deposits without fees or that interest rates are low. People who want to save have been wrapping cash in aluminum foil and putting it in the freezer forever. Not getting interest is still better than spending it.
I read years ago that interest, dividend, and capital gains were not taxed in other countries and their tax rates on earned income and sales taxes are higher. This would by it's very nature promote investments, even by low income people, and cut consumption. Social Security, I believe was created to force Americans to buy US Treasury bills and thus have a ready market for them in order to finance US debt. There isn't an organic life form in this universe or any other universe from 100 trillion trillion years ago or a 100 trillion trillion years into the future that would put t-bills into long tern retirement funds unless forced to.
Americans would be foolish to save. We have forty years of experience with Congress stealing our savings by inflation. That dollar I saved in 1970, even with the interest I collected is now only worth 35 cents. You need enough for emergencies and other than that you better put your money into things that will hold their value and the American Dollar isn't it.
Our tax code encourages debt, not capital formation, and that is the essence of the problem. When savings accounts pay almost zero interest, and what little you do get is taxed away by the government, it's little surprise that no one saves. If mortgages were not tax deductible, and interest paid to an account wasn't taxable, people would save more money and borrow less. It's really quite simple – you get more of what you reward.
Why "save" when there is little or no interest return on your money? It is just common sense to use the money to pay down any debt to reduce principle and future interest costs....not to mention the recent increase in the price of fuel and food which is sucking up income at a faster rate.
Gee, I dont suppose medical insurance premiums, and college tuition, going up at 5X inflation for the last 15 years had anything to do with reduced savings do you?
"...Congress stealing our savings by inflation."??? Duh, Congress is not the economy. It doesn't cause inflation, supply- and-demand economics does.
The Fed causes inflation by "printing" money. It is intentional because they fear deflation. It has nothing to do with supply and demand.
The decline in the savings rate in the 1980's corresponds with the advent of Reaganomics and the beginning of the Great Divergence, the past 30 years in which income divergence and the wealth gap have grown to levels not seen since the Gilded Age. Prior to the Reagan administration income growth for the top 1% and everyone else tracked one another fairly closely. Then the income growth for the 99% flatlined while income growth for the top 1% exploded. How can people save when their wages are stagnant? http://www.panderingpoliticians.com/2012/01/legacy-of-reaganomics.html
I always love how liberal writers try to make it sound like it's never the poor's fault that they're in debt and have no access to banks and blah blah blah. BS. Instead of pushing your liberal view, try to actually help them out for a change. Since you seem to be incapable, I will.
Credit Unions. If you're in the St. Louis area, Scott Credit Union. $5 to open a savings account. No fee's. It pays interest. They also provide free checking accounts. No fees. No minimum balance. Free debit card. It does not pay interest.
Give a man a fish and he eats for a day. Teach a man to fish and he never goes hungry. It appears the writer never learned that principal.
A lot of commentors here stating that they don't have an incentative to save due to the lousy interest rates on savings accounts. That logic is flawed. You have to consider the indirect rate of return on your savings you acheive by being able cover expected and unexpected expenses without the need for financing…by paying cash!!
Quite true. Also, you can save – that is, increase your net worth – dramatically by paying off debt, especially credit card debt. Every dollar of principle you pay off nets you a savings equivalent to the interest rate charged by the credit card company – normally well into the double digit range. The same is true for making additional payments against your mortgage; the return is equivalent to your mortgage rate, and you build equity at the same time.
LOVED this article, all makes sense to me, but this country top is so GREEDY they refuse to admit that their greed is what is holding the country back as a whole. My opinion. If we don't make changes in 2025 we really will be a third world country
The socialists at CNN are reading your post, wringing their hands, and saying "gooood..... gooooood..... gooooooood."
The brainwashing is complete - with you.
As for the rest of us, we're throwing Obama out in November.
Longggggggg article.
Didn't mention even once 20 years of wage stagnation for the bulk of Americans, the ones who spent most of their money, and saved a little. Guess what! Don't give someone raises for 10 years, and they have to spend ALL their money, and more, to survive. Easy credit a problem, you bet, and I see the NEW credit card laws did nothing except open the door to sub – standard risk services that charge fees for everything, and 30% interest. The go'vt is there to prevent HARM to the people of America and America itself, not just from external threats, not just from protestors camping out in parks (heh, the gov't is the one who branded them a risk to life and limb and orchestrated that one weekend rousting of all the camps), the the gov't is also there to prevent people from hurting themselves and others.
Where is the gov't now? Where are they when they should be passing laws that say JUST WHAT THIS ARTICLE WANTS individuals to do, make safe financial decsions. Why bemoan individuals behavior and not the pushers, the men and women with masters in business who create the businesses and prey on those that have no other way to get money? Why isn't the gov't doing it's job?
Oh, and let me say again, wage stagnation for the middle class for over 10 years and you DARE to say it's poor fiancial habits on the part of the people, the wage earners?
I don't know about you, but I'm making lots more money today than I made 20 years ago - and I don't belong to a union.
Hard word really does pay off. Unless you're a dumb, dependent Democrat.
How about a nation of "whatever you want, Sweetie."
Nutless parents who think cash is the equivalent of upbringing, and "helping" their kids along with the myth.
I know a little about where the unpaid credit card balances come from.
With all due respect, a professor of history and East Asian studies pontificating on economic issues, especially why Americans purportedly "don't save"?
Dear Ken, read the book, Beyond Our Means, and then try to find a highly paid economist who has persuasive ideas on why people save or spend. Make up your own mind, rather than making snap judgments that simply make you comfortable.
The explanation is easy: the amount of 'savings' in the pension funds in the northwestern European is substantial, but not enough to maintain the same standard of living after retirement. Figures vary from 60-70%, at least a 30% drop. Because of the natural greed and consumerism (you don't want to step down while in good health), those Europeans do exactly as a protestant republican economist would do: save. For yourself and the children.
Do these people just make this stuff up as they go along. I don't know anyone with credit card debt anymore who haven't paid it way down or eliminated it entirely. Amar C. Bakshi needs to wake up and smell the coffee.
it seems odd to me that people would put their money in a bank that gives ya 1 or 2% and tries every way they can to charge you for the privilege of banking with them.. then the government takes the rest in income tax
Excellent collection of points in the article. Is it conceivable that the 10%+ savings by core European countries vs. the 4% or so in The States is partially attributable to the expensive difference in health care? Most core Euro health systems are not based on profit, as the entire US system is. Were Americans to ACTUALLY get the same advantages of these supposed "socialised" health care programs, our costs would drop dramatically and, I would surmise, that some of that money would increase US savings. As long as we pay the premium price worldwide for healthcare, there will be a lot less money to save.
My friend who lives in Europe UK moved to live in Hongkong and she told me that Hong Kong people spend their money like water fall she was quite shock in comparison to UK residents. I was also surprised about it where do they get the money from?
From Obama. He pulls it out of his stash.
Social security was initially touted, or at least people were led to believe, that these were savings accounts for their retirement. To tell you the truth, transitioning social security into personal accounts where individuals MUST pay into it and may invest it in investment instruments is a good idea but it takes money away from the governments use so they will not like it. When the market goes bad we are always told this is bad BUT, as is shown every time the market takes a hit, it comes back as it has this time. So the idea of peoppe losing it all is greater with our government run program than the private- in general.
We rely on people being in debt. That is why we offer free money and allow people to purchase what they cannot afford. Worse yet, we charge those with the least the most through PMI insurance, higher credit rates, etc. Money lending should be tightened. Home ownership, while sounds nice, is vastly more expensive than simply the mortgage- after all, non of us really owns a house. The bank does and even if we pay it off, then we lease it from the government. Then there is up-keep, etc. It was far easier to save money when I rented.
American taxpayer money hard at work: "Restoring Egypt’s First Mosque" (See USaid.gov and Restoring Egypt’s First Mosque") $15 million down a rat hole.
A savings account is just about the worst place to save your money. Those 1-2% interest rates won't even keep up with inflation, so over time you'll technically be losing money saving your money in them.
Looks better in your pocket than in some public sector unionista's pension fund.
American taxpayer money hard at work: "GENERAL.—There is authorized to be appropriated to carry out this Act (i.e. the "CALIFORNIA MISSIONS PRESERVATION ACT") $10,000,000 for the period of fiscal years 2004 through 2009." Yes, more money down rat holes. What happened to the separation of Church and State? Why did I have to have my money go to the state of California to restore ROMAN CATHOLIC Missions?
The US spends while the rest of the world saves because we accidentally elected a European quasi socialist dictator for a president.
That's going to change come November.
You betcha!
and his first budget was 2010, so what was your dumbazz saying ?
Obama is a Corporatist Reagan Republican, and you're an idiot. Yes, "Obama" is "responsible" for several initiatives that are mildly people-centric. It keeps the population mollified while the Oligarchy continues to drain every dollar from our labors. Trust me, every presidential election is pre-ordained. Why do you think there are only two choices, bad, and worse? Obama will win, and he will keep shilling for the Plutocracy while idiots like you rail at "The Socialist" that doesn't exist. All socialist countries in the modern world, whether they be Sweden or India, are first and foremost Capitalist Republics. The only difference between these nations is how much of the national income is set aside to ensure the health, education, productivity, and happiness of the nation's most valuable asset, IT'S PEOPLE. And not just the RICH PEOPLE. You should be aware by now that the US, like all the other advanced nations is a Socialist Republic. It just happens to be the CRAPPIEST ONE IN THE WORLD, with income disparity and unhappiness the greatest in the developed world.
Talk about RATHOLES. 1.3 TRILLION a year spent on an offensive force the world has never seen before, which uses 8 million BARRELS of oil a DAY, 1400+ "security" (spying operations) Homeland Security from desks in D.C. and the debt service on past "Defense" overruns. This is why there is no money for jobs or SAVING. 43% increase in the GDP and THE COST OF LIVING between 2001 and 2010. How many of you made 43% more last year than you made in 2001? THERE'S YOUR ANSWER TO THE NO SAVINGS QUIZ.
Ok, I am a Teller at a Bank, and this article is WRONG
Most of the people who are the "unbanked" are people who wrote bad checks or overdrew their accounts into the negative and never paid the bank back. Now they are on a credit report (ChexSystems) and can't get an account anywhere for 7 years.
Go to almost any bank and you will find a FREE savings account.
Now the truth about "saving." The truth is that saving was a great idea when the currency was backed by Gold and Silver, but since it became a fiat currency, saving is a loser's game. Fiat currencies always inflate to the point of collapse, this will happen with the US Dollar. Inflation destroys both debt and savings.
Banks are held captive by the federal reserve, all of our rates are based off of what the Federal reserve sets.
If you really want to save, every month take 10% of your income, go to a coin shop, and by Silver, its inflation free.
Even a "poor" person can do it by saving Silver dimes ($2-$3).
poverty and riches begin and end in the mind.
Gee, I feel out of place. I only saved 30 percent of my salary last year. I am sure the demmies will go after that too since it is just sitting there not doing any good.
There is already talk of making 401k contributions taxable. And of applying that ruling retroactively. That nice pile you've carefully built up for the last 20 years or more? Get ready to fork over a third of it. Or more.
The trend has been going on for A LOT, LOT, LOT LONGER than Obama you PARTISAN GOOF.
why bother saving when you know the govt. is constantly printing money out of thin air....and you fear an argintina type of senario in the near future?
Who influenced Obama when he told Joe the Plumber he wanted to "spread the wealth around.?" Obama, in 2009, told us: Catholic Social Justice. (See "Obama: Social Justice in Catholic Church Has Had 'Profound Influence' on Me") We've been spreading wealth around for quite some time now, but how can wealth be wealth when it's not earned? We are looking at the last days of America as you know it. The spending (printing of money) is out of control (thanks to Republicans and Democrats) and the model of wealth redistribution is the last hurdle before we crash. So, Obama was just looking to Rome for his influence when he said that to Joe the Plumber:
"Looking after the common good means making use of the new opportunities for the redistribution of wealth among the different areas of the planet... to ensure a globalization in solidarity, a globalization without marginalization."(363 – Social Doctrine of the Roman Catholic Church)
WHY IN THE WORLD WOULD I SAVE, WITH INFLATION AS HIGH AS IT IS?
THE POWERS THAT BE ***DO NOT WANT US TO SAVE***, AND THEY ***RIGGED*** THE SYSTEM SO THAT YOU GET PUNISHED FOR SAVING.
The point of saving is to increase your net worth. One of the fastest ways to do this is to pay off debt as quickly as possible. Paying of credit card debt, in particular, yields a huge return; your investment in doing so pays you back at the interest rate charged on the loan, often in double digits on credit cards. This works on any kind of loan, though, including mortgages; making accelerated payments returns the loan rate, and in the case of a mortgage you build equity as well. All of these count as saving, and in fact this should be done before you start socking away cash in a savings account or investment portfolio, because the return is almost certainly higher and it is guaranteed.
How about if we had an actual healthcare system instead of a make a profit off of people's illnesses system. Being that hospital bills account for the majority of bankruptcies even for people who have insurance, it might be a good idea. A country that is based on greed, has politicians who are for sale and cares little for the welfare of it's people will not survive.
Heard an interesting idea the other day. An economist was suggesting changing from a income tax, to a consumption tax. In other words Income – savings = consumption. Consumption at normal levels needed to support a person or family would be taxed at a modest rate, with progressively higher levels of consumption taxed at higher rates. I'm not suggesting that this idea doesn't have it's own pitfalls but I did see it as potentially one way of altering the American culture of spending money as soon as it's in hand. One possible dismissal would be that it would overly reduce consumption (long a stable of the American economy) however it resulted in a corresponding, or greater, increase in investment, perhaps it could provide the needed savings incentive without adversely harming he economy. Thought it was an interesting idea.
how can i save when my bills are 100% of my earnings? i am already sacrificing things i need. banks in my area charge 6 dollars to cash a check! so a 6 dollar check or less is worthless! most banks wont post large checks before small checks hoping for multiple overdraft fees. besides that what interest am i going to get on my money 2%? thats a joke. meanwhile my credit card charges me 31% plus overlimit and late fees. i rather keep my money under my mattress (so to speak) so the bank cant get it with their fees.
Again: paying off debt is a form of savings. In your case, it would be a good one; every dollar you pay down your credit card balance returns 31% interest. You won't find returns like that anywhere else.
You could also open a bank account and stop paying check cashing fees. Better yet, try a credit union.
Only a fool would have a savings account in a US bank when the government is printing money like there's no tomorrow. Soon enough, the FDIC limit won't be enough to buy a loaf of bread.
The 20-30 year olds of today, want EVERYTHING today...half the crap they buy, they don't need...they will probably end up living on Social Security when they turn 62, if there is anymore $$$ left for SS...they just borrow, borrow, borrow...Not my husband and I....We lived very well but we didn't go out 4 nights a week...we saved and invested so much that we are living like kings and queens....my SS money every month is my "T J Maxx" money and I am loving it....
Why save...you're TAXED on the first penny of interest you earn and if this administration has it's way they will try and get the principal. Our tax code does NOT encourage anyone to save.
Most of the people I know who lost their savings got into trouble because of health issues that bled their savings, caused the death of a spouse and loss of a 2nd income, or forced them to find alternate work because of health issues that earned less money. I know some people do spend too much for things they want rather than things they need. But there are a lot more people who have to make choices: Medicine or food? Health insurance or rent? How do you decide? If you are young and healthy, buddy, you better be saving for that rainy day.
Don't worry.
Starting this week I"m gonna focus on studying SURVIVALIST training courses.
I'm tired of trying to barely make it in this worldwide rat race. I see people breaking their backs at a job they don't like just so they can KEEP THE JOB. They don't even get a raise. There are simply to many people and too few jobs that pay enough.
If I'm gonna struggle to get by, I might as well do it on my own terms. I'm not gonna spend my entire life worrying about losing my job, then going through endless retraining and finding a new job. Then being told I'm too old or didn't train enough for the new job. It's an endless cycle.
Time to start living like the Amish. Forma close knit community where everyone pitches in a little bit to make the community a nicer place.
Get your money now. Don't get a tax refund at the end of they year. Those who do get a tax refund at the end of the year will not get a debit card instead of a check to deposit in a CD. The government is encouraging spending so the powers to be can be reelected. They don't want people to save. Let's not help Social Security save for the future by raising the Social Security tax. Let's cut it. Let's start two wars and instead of doing as Lincoln did and raising taxes, let's cut them. The country is being run by imbeciles. People like myself with IQ's of 136 are not in charge.
Then run for office...
Figures lie – Liars figure.
Give an competent accountant some raw number and tell him what you want them to prove and he'll do it – on both sides of the argument.
With the the low interest paid on accounts at banks and credit unions, there is not much incentive to save any longer once you factor in the income tax you must pay on the interest earned. With interest at no more than 2% in most cases you come close to losing money in the long run once you factor in inflation. Interest on savings accounts should not be further taxed, to also help encourage more savings.
Let's not forget, this entire housing/lending crisis began with Barney Frank making Freddie and Fannie give houses to people that couldn't afford them because everyone, "has a right," to own a home. This entire crisis was brought about by left wing thinking carried about by both Democrats and Republicans including GW Bush.
We're spoiled – plain and simple. We want everything now rather than having to actually earn, save and acquire through good sensible economic principles (e.g. pay as you go). Credit has all but ruined this country because it is extended to those unable or unwilling to repay. It started with credit cards and was extended into housing which, as we all know, came crashing down in 2008 (not without plenty of warning, mind you). There is blame to go around aplenty with government, banks and consumers.
as a kid growing up in the 50's i remember my parents talking about how scandalous credit cards were. course mom going to the grocery store in less than a dress wastoo.
It was a long article and I lost interest along the way so perhaps I missed it but the reason Americans don't save is because we are rewarded not to! Check the interest rate on a savings account lately? Many banks want to charge you for keeping your money... I listened in shock recently as the Fed Chairman suggested the Fed was channeling American Investor into more risky investments sans the Stable Value Money Market Fund. They don't like your money being on the sidelines.
Take heed Obama supporters. The nation of greece is what we are headed for if you don't give up your grand ideas of Free health care and Free cell phones and Free abortions. We are already grossly in debt. Raising taxes on the rich will never be enough to cover Obama's promises. Learn to take care of yourselves.
"The audacity of hope" should be changed to read "the audacity of self-sufficiency."
Why would Americans save? We all know that our accounts will be assulted by "theft by Congress" better known as defict spending and inflation.
I tried to save but I fell under the spell of all the TV ads and now have to rush out to buy.
Americans are spoiled. They have to be fulfilled by materialism. The rest of the world gets it.
Generally, Americans don't save because it's not in their culture to save. There are sub-groups in America that do save at a greater rate than the mainstream, but they make up a small portion of the whole. Americans have generally, also been seduced by the concept of instant gratification. Why put off until tomorrow what you can have today? For the US to have a hope of surviving what appears to be an impending calamity with a devastated dollar and a possible Eurozone collapse, Americans will have to become more savings minded, but it will likely be a tough pill to swallow. Americans are nothing if not creatures of habit–they like to spend
Just increase the interest rate. Restore the gold standard. Stop taxing interest and investments. That is how get the savings go back up. Ask yourself: savings for what? Americans are saving nothing because they know fiat money is essentially worthless in the long-term.
Saving accounts are almost free accounts to the banks so why bother letting them use your money practically free of charge? This is another problem that needs fixing in America along with the federal tax loop holes to the rich.
When is the last time you heard someone say "We can't afford that." That's loser talk, only a loser can't afford a Mercedes, only a loser can't afford the bigger house, newest clothes. We have lost the courage to be savers. It takes courage to say "Lets buy the Ford and bank the rest." And in reality, after two months no one notices your Mercedes but you will be making bigger payments for years. We need to have the self confidence to say "What do I need that for?"
II used to save a lot. Then I got married.
Seriously, though, why save when the interest rates are so low and the government taxes it? We need more consumption taxes and less income taxes.
Really timely. It has been really interesting to consult these articles during the financial environmental adjustment. I've learned a great deal about investing. Thanks for the article.
We need to get out of the WTO, end these free trade deals, and get back to economic nationalism... fire all the current politicians.
So removing the mortgage deduction that drives up home prices could lower average debt? Curiously plausible.
I wonder that he makes no mention of education loans. Interest rates are so ridiculously high for kids that it seems burdensome.
Interesting facts throughout, though.(I had no idea that 25% of households were "unbanked" for instance. Ridiculous.) Thanks.
Who says we don't save? Just because many people don;t trust banks or the government with their money (or other savings like gold, etc) doesn't mean we aren't saving. With most banks ripping you off through crazy fees and the government intrusion and access to your accounts, my savings are elsewhere. Go to your bank and withdraw $10K or more and they will force you to fill out a government form to get your own money. Screw that.
It's hard to convince someone to save when a savings account earns less than 1/2 of a percent interest!!
i save bullets...only real currency left.
For lower income people to be able to save, they have to make money. The minimum wage has to be increased to around $10. Secondly, we must educate our young people about the financial world. There should be a mandatory course in each high school that will educate the students about finances in the real world. Another suggestion is to allow interest deductions to be tax free up a limit of $200 a year. Of course in today's savings world they wouldn't have to worry about that but hopefully that will change and give them a little more incentive to save. Tighten credit requirements on credit cards, mortgages, autos etc. Lastly, do away with Equity loans. Originally they were home improvement loans but seldom used for that. Look at the mess they helped get us in.
"To what extent does America’s low savings rate at the household level contribute to the problem of America’s national debt? "
It's the other way around! Americans save little because government at all levels takes huge chunks of our incomes with runaway spending. On top of that, the artificially low interest rates caused by government over-borrowing and Federal Reserve policies makes saving rates unattractive. Why save when you can only get 0.1% on a money market, or 0.85% on a two-year CD?
It is tied directly to Americans lack of personal responsibility. If you feel responsible for your family's financial welfare, you will save to over emergencies. If the government has convinced you that it is their role to cover emergencies, why get out there and spend every dime you have. Don't try to blame this on banks, or solar flares, or phases of the moon. We have let ourselves become pathetic.
Because Americans were so easily led by the nose by real estate agents and hundreds of Maddoff – to believe that money grow on trees. And the sad ending if it is 99% gullibles remain broke while 1% became even richer.
Americans at large always think they are smarter then the rest of the wrld – its true they are smart, but only the top 1% multi millionaires (who dont pay taxes – OMG! how can this be happening in mighty U S A )
As gas prices rise, you see savings, I have a theory about the USA economy, Americans tend to save as things get more expensive, but as prices drop, they shop. We're not as stupid as some make us out to be, we don't do business with banks for the exact reason he said, high fees, but also its much easier not to. Why have a bank account when there's nothing in there? Go to peoples houses and you'll find people hiding money in socks in their drawers before they go to the bank.
Maybe cultures can tell us more about this issue than economic theory.
I'm French and I estimate my personal saving rate at 30 to 40% of a salary of 40 000 euros a year.
At least in my very personal case, this relates mostly to my education : I've been raised on the idea that you shouldn't buy what you don't really need, and that, if something is not broken, there is no need to buy a new shiny replacement. If I buy something new and realize afterward that I actually didn't really need it, I feel guilt, just like forgetting to switch off the light when leaving a room makes me feel bad. Paying too much for something can haunt me for a long time. I heard many times as a child that "we just don't need that fancy new toy".
That could be called stinginess, but not quite. The point is to try to find a sweet spot where you buy quality stuff -thus expensive- that last and don't need replacement before a long time, so it saves you money in the end. My mother is proud that most of her household "stuff" (TV, fridge, oven...) are all well below the ten years mark, and functional. Of course, if it eventually breaks down, there is money in the bank to buy a reliable replacement for the next 10+ years or more.
All in all, that's quite the opposite of the all-American behaviour I've generally witnessed, where available money is mostly waiting to be spent.
By the way, my girlfriend is Asian and she's even worse, to the point of accepting discomfort to save money...
I forgot to state the obvious : in the US and Canada, bank fees and what you pay extra to simply use their service (ATM fee...) are highway robbery, which is not the case in Europe.
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Fantastic , yet simple solution for America.
So, it's time to start saving folks, because its going to get worst from here. The days of eating and spending like there is no tomorrow is over cowboys.
USA – Land of a comatose, bought off congress and spoiled lazy citizens who like being ignorant and apathetic.