Credit Basics

Credit used to be only for durable items - homes and cars. Now credit supports American lifestyles. No wonder savings hit a historic low. What can be done?

If Americans could be divided into savers and spenders, Courtney Davis knows exactly where she would fit. "I am a spender, through and through," she says. "I see how much is in my account, and that is how much I have to spend on a new outfit, a night out, or a great meal."

But last month, Ms. Davis, a manager for a Boston think tank dealing with food issues, grew tired of having nothing in the bank. A broker arranged to have 20 percent of her salary deposited automatically into savings and investments. As she says, "It's the only way I can save, by not even getting a chance to get my mitts on it."

As a nonsaver, Davis has plenty of company. Americans' personal savings fell to -0.5 percent last year, the first time since the Depression that the savings rate has been negative for a year. Although that is just one measure of economic stability, it reflects how irresistible consumerism has become in the American psyche.

"Other countries are not wrapped up in consumption as much as we are," says Larry Frank, author of "Wealth Odyssey.""They like to have nice things, but it doesn't seem to be the benchmark where society is measured as a success. Having something saved is also part of that benchmark in other countries."

A new report from the Federal Reserve bank finds that only 41 percent of Americans save regularly. Three-quarters of households carry debt.

Americans' long journey on that road to debt began gradually after World War II.

"Baby boomers' parents had access to credit, but in a responsible way, using it to buy durable goods - a house, a car, a washing machine," says Shira Boss, author of "Green With Envy: Why Keeping Up With the Joneses Is Keeping Us in Debt," to be published in May. "As baby-boomers grew up, they gradually started to see debt not as a way to get these durable goods but as a way to increase their lifestyle. They started sacrificing any future security for present-day comfort and entertainment."

In 1981, Ms. Boss says, families saved an average of 11 percent and owed 4 percent of their income on credit cards. By 2000, the average savings rate had already fallen below zero, and credit-card debt had gone up to 12 percent of income. Today, she says, "boomers have a bigger problem with debt than anyone else. Half of them do not have a retirement account."

For consumers as a whole, Boss sees a collective psychology prevailing. "We ask, 'What are others doing, and what can I get for myself?' Nobody wants to admit that there's anybody they're keeping up with, but we do collectively keep up with one another."

Financial experts cite varied reasons for the lack of savings. Some are economic. Average weekly earnings decreased by 0.4 percent in 2005, according to the Bureau of Labor Statistics. Housing, healthcare, and education costs have skyrocketed.

Other reasons are cultural and attitudinal. "People don't remember the Depression," says Lewis Mandell, professor of finance at the University at Buffalo School of Management in New York. "People who are younger just really believe that nothing bad can happen to them. Either they think Social Security is going to be there for them when they retire, or they may feel that the government will never let them starve."

Losing a tactile sense of money

Another culprit involves the changing idea of what money is. "We have lost a tactile sense of money," says Rakesh Gupta, associate dean of the School of Business at Adelphi University in Garden City, N.Y. "We're using plastic now. It doesn't seem like money. When we have a roll of money that gets smaller and smaller, we think about where we should spend it. Now that we can whip out a credit card or debit card, the pool of money seems endless."

Popular culture plays a part as well. "People watch TV and think they have to live the life of characters on their shows," says DebtSmart.com creator Scott Bilker. "They start spending a little more."

That spending often marks a generational shift. "What our parents saw as luxuries, people our age see as little indulgences," Davis says. "My mother would never spend $5 on a coffee. Some people do this every day." She adds, "My parents are appalled at the way I justify my spending. I think, 'Why work and make money unless you're going to enjoy it?' That's a fine theory until you're 60, homeless, and with no money in the bank."

People intend to save, Mr. Bilker finds. "It's everyone's goal. They just don't do it. People are confident. Their home price has increased. They feel it's safe to spend. They're banking on future earnings."

Cindy Lenox has good intentions. She runs a women's fitness center in Shrewsbury, N.J. She opened a savings account last month, hoping to deposit even $5 a week. It hasn't happened yet. "I own my own business, and there are weeks out of the month that I don't get a paycheck. For me, retirement is nonexistent. I think I'll be working for the rest of my life."