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Why Americans Are Going Broke
Why is it assumed that the poor and middle class are likely to spend the rebates?
Because, under normal circumstances, they are the ones who have less disposable income. If you are on the lower end of the curve, you are more likely to need the money for immediate expenses. So that's why it is best to put it in hands of people who have very little.
Why wouldn't they save it or put it toward a debt?
If they are smart, they would. The problem for most who are seriously in debt is that $600 or so doesn't amount to much. If there's a small debt they can pay off, they should pay it down. If they're able to squeak by month to month, saving it for an unexpected expense might be more valuable for them
So what can consumers do in a world designed, as you say, to encourage them to overspend?
Using techniques from behavioral economics, it helps if you can make saving automatic. You can make it even more invisible by timing the start of your savings to your annual cost-of-living increase so you don't experience the savings as a loss … I also recommend automatic monthly bill payments. Split your paycheck into two with some going into a bill-paying account in which you have no ATM access, and the rest should go into another account that would house your disposable income.
What would you propose the government do to help reverse the trend in consumer debt?
One of the most important things is to promote savings … and obviously we need reasonable limits on credit.
So the government should actually set limits on how much you can borrow, depending on your income?
Yes. There was a time when if a banker gave someone a loan and the person failed to pay it back, the banker felt some responsibility because he had made a bad assessment. That ethics in banking obviously is gone. The subprime mortgage crisis is the most obvious example of that. Plus, there's a tremendous amount of adding on fees, hiking interest rates, etc. There needs to be more information for consumers and better financial education.
If consumers actually saved money and paid off their debt, could it hurt the U.S. economy?
One reason we have all these problems is that we are supposed to. It drives our economy. If everyone had no debt and was into saving, then our economy—as it is designed today—would not be performing as well as it should, according to economists. But I think we have to ask: would we as citizens be happier? I argue that we would.
© 2008
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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".
I am specially trained in Finances,Economics and investments but is not teaching on that right now.
However, I think the real crooks in being broke - is Really the lack of Key, Key! investment information.This we can substantiate, and prove to you easily,because within the 2% Rich Americans populace are some rotten rich people, some even at age 16.Which simple means that it is the right /key information along with a decision that will in effect move you from the 98% to the 2% category even overnight.!
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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?