There’s no question that the last few years have been hard on Americans financially. The recession wreaked havoc on people’s savings, decimated the housing market, and has contributed to the narrowing of the middle class. But who’s to blame for these developments?
Of course, the banks are liable for lending money indiscriminately, and the Fed obviously contributed to this by artificially lowering interest rates, which then left many people out in the cold (sometimes literally) when the rates had to be raised in the face of the financial crisis. However, such an argument ignores the fact that individuals in America should be handling their finances more responsibly.
According to Google Consumer Surveys, 21% of Americans have no savings set aside, and 62% have less than $1,000. This amount of money won’t buy most Mac Books, cover a down payment on a car, pay for a complex pet procedure, or handle taking down a dangerous tree. And many people have a lot less than $1,000; those with only $150 in savings will be in serious trouble when they get a parking ticket and need a new washer at the same time.
By and large, the 83% with limited or no savings are spending their money on the here and now. Of course, some of these individuals are living paycheck to paycheck and simply have nothing to spare for savings. But many Americans have been caught by the lure of consumerism and the “get something for yourself” culture that discourages any self-denial in the face of instant gratification. In fact, consumer debt has grown by a factor of 10 since the 1980s, and the average per capita debt has jumped from $9,300 to $65,200 in the same period. While some of this can be attributed to things like student loans and salaries that have not risen with the cost of living, much of it is to do with personal spending habits.
That’s not to say that people shouldn’t be treating themselves once in a while and buying things – after all, expendable income is one of the biggest things fueling the economy. Nonetheless, reckless spending can make it impossible for individuals to handle unexpected costs, and ultimately hurt the economy anyway when they can’t afford anything but necessities.
In addition, with monetary policy and interest rates potentially working against them in the future, it behooves any responsible person to investigate smart savings options or investments and actually contribute something to them. According to financial analyst Dawn J. Bennet, the Fed is considering adopting a Negative Interest Rate Policy, which would mean that people with retirement accounts would no longer earn interest, but be paying it to the government for holding their money. If this actually happens, average citizens will be losing money that they will dearly need later in life to fund the government’s missteps now. A smart person would start saving independently of those avenues.
What savings options have you investigated and how are they working for you?