Rise of Spending
Savings at Lowest Ever
By Daniel Muniz

In a report issued by the Commerce Department, personal savings have fallen to its lowest point since the Great Depression. The years of 1932 and 1933 were the only times that this country experienced a negative savings rate that lasted longer than a year. And even if the country didn’t break the record, the rate of savings for previous years has been dismal.

But what caused this dramatic decline in savings and what can be done to reverse it?

In its simplest terms, consumer spending is what is ruining our ability to save. Materialism along with easy but bad credit terms has an allure that many people find impossible to ignore. We are a wealthy nation with enticing goods and services that are almost unimaginable in most of the world. As a result, we have an insatiable appetite, which is what drives our economy.

Some experts also speculate that too many people have a false sense of wealth. Not only in overspending discretionary income, but also overextending credit. Certain people are tempted to mistake their credit lines as being an additional source of income instead of it being a liability.

Consequently, if people diverted a bit of their spending into savings, then this trend could be reversed. On an individual level, it would help reduce personal debt and create bigger assets in savings and investments.

Except it is not as easy as it sounds.

Reducing consumerism has a price. One third of our economy is based on consumer spending, so even a brief decline in spending can have a dramatic ripple effect across the country resulting in a downturn of the economy. Industries would suffer and the growth of our economy would be stalled.

In essence, we end up with a “damned if you do or damned if you don’t” scenario.

And it is also a lose-lose situation for politicians of both parties. If consumer spending increases, we experience positive economic growth even though our level of savings as a whole gets tanked. If the reverse happens, that is consumer spending declines, economic growth is stunted even though Americans are putting their money in a better place than at a cash register. Accordingly, politicians will then clamor for more consumer spending and provide incentives to encourage it.

From a political point of view, there is not a feasible way to solve this dilemma without suffering repercussions from an opposition party and the media. In some ways, it is almost better to do nothing and let the chips fall where they may.
 

Story Continues Below ê

Today's Top Stories

● Desegregation Decrees - We Must Stop Living in the Past ● Birthday Suit Parties - The Ivy League Rebellion ● Obesity Politics - New Ways to Feel Good ● Disrespecting Teachers - Parents are Out of Control ● Audacity of Molesters - Teach Children as their Probation ● The Color of White - The Meaning of White

Yesterday's Top Stories

● Reforming Bureaucracy - Say Goodbye to the GS System ● Helicopter Parents - Parents Who Do Too Much ● Unsavory Pictures - Mayor Forced Out of Office ● Poor Minorities - A Collective Moral Responsibility? ● Firing Teachers - States Need New Tenure Reforms ● Nude Carwash - Drought Drives Aussies to Extremes

One possible way to increase savings is to simply allow bigger contributions that people can put into tax deferred retirement plans. This incentive helps people with larger incomes but it has little impact on the smaller wage earners that do not already max out their contributions.

But in all reality, the culture of consumerism and materialism is the real culprit but it remains the least addressed.

Americans in general don’t like to be preached to even with a secular gospel although they don’t mind the slick TV ads promoting impulse buying and commercialism. As a result, it is easier to escape personal responsibility and blame someone else like high interest credit card companies and sub-prime creditors.

Yes, these predators have easy terms in which just about anyone can be approved. Yes, they also have outrageous interest rates but nobody put a gun to your head to force you to buy a 42-inch high definition plasma screen TV. Nobody forced you to max out your credit cards or put new electronics in your house. The consumer, not the creditor, made these decisions even though the consumer often blames the creditor for too much debt.

However, I have to admit that I am a paycheck to paycheck person. And yes, I too have fallen victim to being under too much debt. However, I feel that I victimized myself instead of being victimized by the credit card companies. I only have myself to blame and I accept that responsibility. But most importantly, I recognize that whatever condition I am in now does not mean I have to remain in it. And I think that this is the real beauty of responsibility because you are in charge of your own destiny and you can make your own decisions about your financial future.

But perhaps the hardest thing to do is to break the cycle of materialism especially if you are already comfortable with a certain lifestyle even though it is beyond your means. I have been there and it isn’t easy overcome but it has to be done.

In order to obtain wealth, you have to have something that produces it. And that is perhaps the most important lesson that I remember from one of my tax law classes in which my professor explained that, with few exceptions like professional athletes or movie stars, rich people are not wage earners. Rich people derive their income from dividends and interests. In other words, rich people don’t work for a living.

Unless you are willing to put money into savings and investments, then you are not going to be able to have your money working for you, especially when it comes to retirement.

And retirement is perhaps the greatest incentive to vigorously save and invest money. Too many people don’t take retirement planning seriously expecting that either the government or the Retirement Fairy will do it for them. But planning for a retirement remains as perhaps the most feasible way to encourage people to save and invest money. And it has the least political fallout.

We want your opinion! Tell us what you thought about this article. Click the Your Feedback menu item to send us your comments.