Must Read: New York Times Series on Consumer Debt

I'd bet you are tired of hearing that this or that is a "must read." But if you are interested in American consumer debt, you really will want to read this article in today's New York Times. It's the beginning of a series on the topic, complete with online video and interactive features. Get this: The average American household has about $118,000 in debt but saves only $392 per year (an unbelievably low .4% of disposable income), the lowest level since the Great Depression. In the 1940's, annual household savings were $12,807, or 26% of household income. In 1957, 42% of households had no debt; today, that figure is 26%. In 1961, 53% of homeowners had no mortgage debt; today, 31%. And, in 1967, 6% of households carried a credit card balance while 40% do so so today. The average American family today has 13 credit cards and over $8500 in credit card debt.

Comments

[Ted Frank]

Don't you think it's a tad misleading to compare the nationwide savings rate of a single quarter of today -- where the ratio of retirees to workers is at an all-time high, and in a flat economy, some consumers are resorting to short-term borrowing -- with the savings rate from a decade where consumer spending was not permitted because of the war effort, and people were putting disposable income into war bonds? We can very easily return to a 26% savings rate if we resort to nationwide mobilization and rationing, but I suspect that Public Citizen (and most of the rest of the American populace) would find that problematic.

Of course the national savings rate is going to be negative as the ratio of workers to retirees and students declines -- the Baby Boomers, having generated the savings you describe in the 1970s and 1980s and 1990s, are spending it down in the 2000s. Those of other generations (including me) put our savings into real estate, which artificially depressed the nationwide savings rate, and certainly increased the amount of debt we held, but increased our net wealth substantially when the debt was used responsibly.

[Diane]

There's certainly no need to resort to nationwide mobilization or rationing. There IS a need to stop this 'gotta have it NOW' mindset and the utter failure of separating wants from needs. The concept of saving for a rainy day has become folly, parents aren't teaching their kids to save, they're teaching them, by example, to SPEND, and spend on PLASTIC funny money !

The credit card industry has done a huge marketing sell to make using cash an aberration (look at the Visa ads on TV !) and to 'make life better' by sinking yourself into credit card debt, as long as you have your toys, life is great -- yeahh.. right. I know very, very few young people who have any money put away to even begin to invest in real estate and now that the banks are actually demanding a hefty down payment to get a loan, these young people don't have the CASH put away to cough up a 10-25% down payment to get a real estate loan.

Far too few people these days understand the concept of living within their means. Heaven forbid anyone should WAIT to buy something they want until they actually have the money for it. If you have $25K in credit card debt, and you have less than that in cash put away, you don't have real savings - you have a stash of credit card payments that will run out LONG before the debt is paid.

The American mindset has to change - and I don't see that happening in the near future.

[Help for Credit Card Debt]

Ted has hit the nail on the head. We are in the "gotta have it now" generation. Even the banks are that way now. I write this the day after the great gov't bailout of Oct, 2008. The banks got into trouble because they went after a market of mortgage borrowers who could not afford to pay their mortgages long-term. But even the banks did not have the foresight not to go there, but instead were in the "gotta have it now - damn the future" mindset.

Sad.