Why Americans Are Going Broke
The new economic stimulus plan encourages consumers to spend money-but isn't that what got so many into trouble in the first place?
Times are bleak for the U.S. consumer. The average household owes 20 percent more than it makes each year. The personal savings rate is in negative territory. Record numbers of Americans are losing their homes to foreclosure, and millions more are struggling to keep up with their monthly bills and obligations. And the nation's economy isn't in much better shape. The Treasury Department has estimated that, with the added costs of the economic stimulus plan passed by the House of Representatives this week in an effort to avoid a recession, the federal deficit could rise to as much as $400 billion this year.
The plan does promise some relief for struggling Americans: a rebate for taxpayers. The government is counting on recipients not to save it or put it toward debt but to do what they've done best over the past 30 years: spend it. Never mind that overspending is what's put many in the financial predicament they now find themselves in. NEWSWEEK's Jennifer Barrett spoke with Stuart Vyse, author of the new book "Going Broke: Why Americans Can't Hold on to Their Money" (Oxford University Press), about the wisdom of such a stimulus plan and why it's getting harder for so many Americans to stay afloat. Excerpts:
NEWSWEEK: You say the common assumptions about why Americans can't hold onto their money are insufficient. Why?
Stuart Vyse: The most common assumption is that people are irresponsible and that they are not wise about their money. It's basically victim blaming … an attempt to shift the blame onto individual consumers. The other point of view on this issue is that it is primarily the fault of predatory lending practices--the "evil" credit-card companies. I'd say there's some truth to both views, but it's not that simple.
What other explanations should we consider?
One of the most important factors is the easy availability of universal credit, plus the fact that the marketplace [is open to us during] every waking moment. Because purchases can be completed so quickly, they're very unlikely to be interrupted by a prudent thought. A third reason why people are going broke is the basic insecurity of our economy. If you have a consumer society where no one is saving—where no one is encouraged to save—and millions are in debt [and then] you hit them with a jolt to their income, they're instantly going to be in trouble.
The House and Senate have passed economic stimulus packages that include rebates to taxpayers, which the government is encouraging them to spend. That seems like an irresponsible message for taxpayers who have debt or no savings.
A number of financial advisers would certainly agree that it would be much wiser to save the rebate to protect against a future [emergency] or to pay down debt—neither of which is going to do what the stimulus package is designed to do. Individual consumers are basically being asked to do something that is probably not prudent for themselves for the sake of the larger "economy."
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Member Comments
Posted By: online money&software trainer @ 02/15/2008 5:40:41 AM
Comment: Americans are progressively growing broke because the greater percentage of their monies are spent on "Consumer Oriented items" versus "Income Generated items".
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Posted By: observer101 @ 02/14/2008 10:53:53 PM
Comment: Maybe people should start saving there own money for stuff they want rather that putting stuff on credit cards. Ist if you think about it, they are charging you to buy something that you cant really afford with the hopes that you will miss a payment, or pay the min payment for the next 3 yrs. @nd why pay someone to hold your money, or withdraw your money? Invest in a safe and put away your own loot, no bank fees, no late payment hassles. That is the banks main gig is to nickle and dime you to death with there legal mumbo jumbo. Perfect example....If you have direct deposit, and you have checks that YOU know will be covered when the bank opens they will put ALL of the checks through first.( so the 25$ bad check rule applies for not having sufficient funds) then put your direct deposit through and then ring up the charges you just racked up. Run the nonsuff chx through again and they hope you dont have enough to cover the second round of insuff. chx. and walaaa they just made atleast $100 on you. This is done thousands of times around the country and it rakes up a pretty good chunk of change. If you think about it how many average ppl switch banks for this exact reason, only to have it done again and again. Its the all mighty banks that are ripping us off with DEALS on loans then balloon the payment and wipe out ppls savings...Moral of the comment..Save your own loot and dont rely on the banks.
Posted By: SharedThought @ 02/13/2008 12:55:15 PM
Comment: The day after Thanksgiving has come to be called "Black Friday," because the large amount of revenue businesses receive that day, as many consumers begin to do their Christmas shopping on the day after Thanksgiving, helping the balance sheets of businesses go from being "in the red" to being "in the black." ...BUT, if many of those consumers used CREDIT CARDS to make those holiday purchases on the day after Thanksgiving, creating DEBT that they would later have to begin paying off, then doesn't that mean that, if the day after Thanksgiving is "Black Friday" for businesses, then that SAME DAY is "Red Friday" for HOUSEHOLDS that GO "INTO THE RED" on that same day. ...But, the media gleefully highllights "Black Friday." SO, is it any wonder if some consumers take a similar devil-may-care attitude about spending?