by Tricia
I read an article on Yahoo about how Americans are saving more and spending less.
On Friday, the government reported Americans’ savings rate, as a percentage of after-tax incomes, rose to 2.9 percent in the last three months of 2008. That’s up sharply from 1.2 percent in the third quarter and less than 1 percent a year ago.
[Via Yahoo.com]
The article notes that paying off debt is considered savings and incurring debt is negative savings. We may even begin to rival the penny-pinching of those in the Depression-era. I think that is a possibility since it appears that being frugal isn’t looked down upon as it once was.
I can’t help but wonder if the change would stick if the economy rebounded. Would Americans go back to spending again?
The real question is how much has the economy had an effect on you? I look around and my neighbors are still driving the same cars they were driving, still living in the same house they were living, not a whole has seemed to have changed from the outside looking in.
As for myself and my family, truly there has not been as noticeable of a difference and other than the fear of a job-loss, how much has the economy affected those around us. I have relatives who still go on their 10 day vacation out of the country, who still prefer to drive their gas raging automobiles and who still choose to field their children in the best of the best when it comes to clothing.
People are still spending in accordance with their lifestyle, just not doing so with the same ignorance. People are scared right now with the loss of investments, portfolio’s, etc. and the media has reported a “doom & gloom” society for a while with Bush in office. Heck one would have thought the economy was a bust all 8 years if you listened to media reports, but the truth of the matter is, we will start to hear about the changing of the tide especially with the crush the media has on Obama.
6 months from now, the news stories will be much different than they are now and will continue to lean in a manner favorable of Obama and his policies. Thus, consumer confidence will shoot through the roof and our fellow citizens will start back on the spending spiral that led us here. A vicious cycle to say the least.
This is something I worry about as well. It’s all very well and good that we’re saving and paying down debt now. People are scared, of course they’re going to do what they’re supposed to. But, what about when things rebound? Are we going to be the generation of savers, but then our kids and grand kids do the same thing we did and drive our economy to the ground? I hope not, but it takes more than just saving and being frugal. We have to TEACH our kids about finances, about what are good practices and what are bad. My parents never taught me anything about finances and I struggled. You can bet I’ll be teaching my kids about saving at a young age!
Based on our own personal experience I’d say yes but not in the same way. When we first started getting debt free we really pushed down the spending, as we’ve gotten more disposable income we’ve started spending more (new TV and PC) but unlike before they weren’t financed but bought with cash. Really Really weird feeling I tell you!
This economy is so trashed by fraud that it isn’t going to rebound for another 2 and a half years, so perhaps the habits will become ingrained enough to stick for part of a decade after that.
I agree with Kristy, that children need to learn better habits, but their parents may not be capable. My depression era parents taught me how to get by on the cheap and always look for value when you do spend money (invest in quality stuff you will use forever rather than disposable things). But I fortunately did not take my dad’s lessons in investing. He is waaaay too trustworthy of brokers and financial consultants and they really have not done him any favors. I don’t trust anyone but myself to manage my money and the last two years have only reinforced that as the wisest course. Not sure where I picked that up. Could be a gender thing.
I think its a little scary.
It seems like we (as a society) are always on one side of the teeter-totter. It’s always one extreme or another. We’ve been drowning in debt for the past ten years. We had everything we wanted, yet we didn’t actually own any of it…
Now that it has all started to fall apart, we are jumping to the other extreme. Everyone’s frugal now – no more wasteful spending for us! Save Save SAVE!!!
This extreme isn’t good either and it will not maintain our economy any better than the last one did. If everyone pays off their debt and builds up a nice savings cushion then we will have even worse problems.
Retailers / Producers are going to start cutting back b/c they have to – the market cannot be flooded with junk in every size, shape, and color when nobody is buying it. There will be fewer items available, less choice and less options – the market will be limited to items that have the best chance at being sold. period.
Now all of us will eventually start buying again, especially since we will all be out of debt and have a huge stock-pile of cash. That’s when the Disaster Part II will strike… When we all start going after a limited amount items with a ton a cash. We will have a major inflation problem!
I don’t think things will get as extreme with penny pinching as they once were. The times are completely different and expenses are completely different. Savings yes and watching out certainly. Just don’t think to a huge extreme because it takes too much effort.
I think it is the housing market that will change the most. The BF and I have student loan debt and credit card debt…once we pay these things off we never want to be in debt again. A car payment may be unavoidable at some point, but we have decided that home ownership is for fools unless you happen to have enough cash to buy a home outright. So our goal is to have that kind of cash available when we retire, so we have stability then, but not before! I have another friend who is going to sell her house and only rent from now on. Buying a home is like having a financial bomb in your portfolio, and we want no part of it.
I think this is a natural move. I would say that the 30 somethings and their children will be into saving, just as our grnadparents were after the depression. Then in another two gnerations we will have the free credit genration again, once the lessons learned in today’s world are forgotten.
I think that some people will learn from it. Just as some people get back into debt right after getting out of it, and some get out of debt and work very hard to remain out of debt.
I’m in it for the longhaul. It’s amazing, but I started the whole get out of debt thing because it was the right time, NOT because of the economy. I’d never done a budget before, never thought I *could*! And I was always a bit oblivious about the news. Sure I’d probably know what’s going on, but it’s something that interests me now, so I am hyper aware of it. All the media stories that are all over the news these days resonate with me, but I would probably have just shrugged it off and kep spending and just worried more if I hadn’t started the journey to begin with.
@Honey:
By my thinking, I’d say you have the it backwards on car loans vs. a mortgage. With the car loan, you are paying interest on something that 9.9 times out of 10 is depreciating in value. With the home loan, you are paying interest for an asset that usually appreciates in value over time (not to mention the tax deduction you get from the mortgage interest you pay). Yes, the current conditions are obviously depressing (my house has dropped something like $20-25k in value). Most investments carry some degree of risk. Honestly though, I think my 401k has taken a larger percentage drop in value than our home.
When you pay rent, you are lining someone else’s pocket. Personally, I’d rather been spending that money towards both a place to hang my hat and an asset that I will own outright at some point.
Having said all that, of course one should be level-headed when making a home purchase. In the past several years people have increasingly been getting loans that they couldn’t really afford (and banks have been letting them do it). My wife and I intentionally got a house that we could afford on a single salary; given the current conditions, I’m sure glad we did it that way! 🙂
Matt, thanks for the comment! I have done quite a bit of research on this and after you factor in property tax, it is my understanding that houses “appreciate” at the exact same rate as inflation – so even if you sell it for more than you bought it for (hardly a guarantee) you aren’t really making any money. And my friend who owns her house says that property tax is more than enough of a negative to outweigh the positive of the tax deduction.
I look at rent more as them making a pretty measly profit (unless they own enough properties to make it worthwhile) to deal with all the property tax, repairs, and other negatives associated with ownership. On the other hand, I don’t have to deal with any of that, and I have the freedom to move every year if I choose – without fear of not being able to sell – which is FAR more important to me.
I hear COMPLETELY what you are saying about car loans, which is why I haven’t made a car payment in over 3 years, electing to keep the car that I had. In fact, if we can move to a place with a solid public transportation system, it has always been my plan not to have a car at all. If that doesn’t happen, then I will drive this car as long as possible and then buy another used car as inexpensively and with as large of a down payment as possible.
While I recognize that there are a lot of reasons people elect to own a home, I think that unless 1) you plan on being a large-scale landlord and making money from your properties that way, or 2) you anticipate being in the home long enough to pay it off, NONE of the reasons to own a home have much to do with logic and all to do with emotion. But then again, you have to do what makes you happy, and home ownership seems to do that for a lot of people – and who am I to criticize that? It’s just not right for me.
Yup, same position here in the UK. Indeed, for every £1 borrowed, £1.40 is being paid in debt repayments … First time this has ever happened apparently … !