Debtor nation: how we got here
(image: wajakemek/Flickr)
Americans have one of the worst saving rates in history. And, we are in more debt than we ever have been–the highest rates of debt in the world.
In 2007, American households needed 240 years of savings to pay back what they owe on homes, cars, and credit cards. Collectively as a group, Americans owe about $14 trillion.
Last month, 5,000 Americans went bankrupt every day. Ronald Wilcox, University of Virgina professor and author of "Whatever Happened to Thrift: Why Americans Don’t Save, And What To Do About It," has this to say: "Americans’ own balance sheets are very fragile right now, so it doesn’t take much to throw people into bankruptcy."
Wilcox continues, "(A medical emergency) is a very common way people get into bankruptcy problems. Increasingly, we are seeing this just as the result of consumer debt where someone either loses their job, or maybe doesn’t even get the raise they were anticipating getting. Even that kind of small fluctuation can throw people into a financial difficulty.
"Americans are at the bottom of the developed world in terms of how much we save. I think one thing to emphasize is that although we are worse now than we ever have been, typically we have not been very good. Americans are just not good savers. We were terrible savers in the roaring 20s, we saved more during the time around the depression. But, since about the end of World War II, until now, we haven’t been particularly good savers. At least relative to the rest of the developed world.
"Part of that is American optimism. When psychologists look at different cultures, and how optimistic versus pessimistic some cultures are, Americans are always right at the top in terms of optimism. If you think tomorrow is going to be better than today, one of the things you don’t do is save a lot of money. People that are more pessimistic tend to save more money."
Of the savings versus spending conundrum, Wilcox says, "I would call it a short-run versus a long-run deal. In the short run, it is certainly better for the economy if people spend money. In the long run, it’s really not good for the economy if people have very poor balance sheets. In other words, that they are in debt."
In closing, Wilcox offers this simple bit of advice in light of the fiscal decisions that consumers are faced with every day, be they for an article of clothing or an automobile: "Most of what we see is financed. You realize that they can’t afford it either."
Support PRI when you purchase Ronald Wilcox’s book, "Whatever Happened to Thrift?: Why Americans Don’t Save and What to Do about It"
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