If the United States economy is so good, why is our rate of savings the worst it's been in 75 years?
The current rate of unemployment in the United States is 4.5%. That doesn't sound too bad!
Utah's unemployment rate, currently at 2.6%, is projected to scare some businesses away from the Beehive State. But that's because nearly everyone who wants a job has one. There are help wanted signs everywhere.
So I am perplexed why Americans aren't saving. Incomes appear to be going up, but spending seems to be outpacing the rising incomes. Is it because the average American wants more toys and gadgets than he used to? An Associated Press article discusses possible reasons:
The savings rate has been negative for an entire year only four times in history - in 2005 and 2006 and in 1933 and 1932. However, the reasons for the decline in the savings rate were vastly different during the two periods.
During the Great Depression, when one-fourth of the labor force was without a job, people dipped into savings in an effort to meet the basic necessities of shelter and clothing.
This time around, the reasons don't seem so clear cut. The fact that we're not saving can't bode well for our economic future. Maybe the economy isn't as good as we thought?
What gives? I wonder if a "rainy day" is coming...
Frank,
ReplyDeleteYou are right, there isn't that many people saving. And, WHEN the time comes, we come to a "Great Depression" time again, people are going to be sorry. As you probably know, Utah is in the top 10 states for bankruptcy and foreclosure. And, the economy is going well. Sound like an oxy moron doesnt it? Foreclosures and bankruptcies high, but still a good economy. I think I know why.
When people buy things, that, obviously, helps the economy. The problem is that people buy things with debt. Alot of things. People look at the extra 150 a month they get in their bank acct and TRY to find a good toy to buy that will cost that much a month. Cause they can afford it, right?
I say wrong. People have to keep up with the Joneses. It has, unfortunately, become part of the American way of life. They got a boat, we better get one too....
When you say, "I wonder if a 'rainy day' is coming..." I don't wonder, I know. When people get so far in debt and stretch themselves thin like that, bankruptcy and foreclosure. Thats what happens. Thats what is happening. It is just a matter of time when the economy catches up.
Right now its going well, cause people are buying. When that debt bites them in the rear, when something "big" (a big co. lay off, market depression, etc) shows up, Some of us will be glad we prepared with money in the bank. I, personally, will be glad to buy the foreclosures.
Just reading over what I just posted. I wanted to add one thing. I believe that there are two different kinds of debt. Good and bad.
ReplyDeleteBad debt is a car payment, fourwheeler payment, boat, etc. Stuff that doesnt necessarily increase in value.
Good debt, I believe, is if you have a mortgage for a rental property, or a margin acct for stocks. Something that pays back what you borrow.
Even so, still a good idea to have at least 6 months expenses saved in the bank. Cause as I previously stated, the rains a-comin'...
Danny,
ReplyDeleteYour observation about Utah bankruptcies is very insightful. I think people are generally just greedy, and want to have it all now, or like you said, they're 'gettin a bit Jonesy'.
I particularly like your comment about the economy:
"Right now its going well, cause people are buying. When that debt bites them in the rear, when something "big" (a big co. lay off, market depression, etc) shows up, Some of us will be glad we prepared with money in the bank"
It seems like it wouldn't take much for the US and the world to fall off an economic cliff.
This shows how deceptive phrases like "good economy" are. People are spending and buying and producing, and the stuff they're buying is cheap because a lot of it is made with Third World labor, thus inflation is down despite all the spending and buying. So the statistics say it's a "good economy" because stuff like production and low inflation equal "good economy." but that has nothing to do with quality of life. It doesn't matter if inflation is low and tvs are cheap if people can't afford what really matters, like a house or a college education or health insurance. It's the inability to afford those things that drives most people into bankruptcy.
ReplyDeleteElizabeth,
ReplyDeleteI agree. The economy is much more complex than most people realize.
We do have a lot of gadgets and clothing, because they are being produced by cheap labor. But you're right--a great deal of the problem is that people can't afford some of the bigger necessities like homes, education, and insurance.