Budget Basics
Pennies saved Americans dig deeper into debt, fewer building nest egg
by Marc Beauchamp
Record Searchlight
Whether consumers can afford it or not, all this spending
has been good for the economy - so far. "The national economy runs on consumer spending
and a substantial amount of it is consumer credit," said Martin. "In the short term
it's good for the economy, as long as people are able to handle the bills."
Americans spend 18.1 percent of after-tax income to cover debt, including mortgages.
Experts say that could limit their ability to borrow and spend more, and consumer
spending accounts for about two-thirds of the economy. Credit counselors blame credit
card companies for pushing cards through the mail.
"Since the '50s, it's gotten progressively easier to get plastic," Rodola said.
"You used
to have to apply and sit down with someone. Now you talk to no one and
you're preapproved and get the card in a week. There's no pressure, no anxiety."
Credit counselors also blame a lack of financial education. "In high school and
college, until recently, we weren't taught about saving and investing and the power
of compound interest, Martin said. What to do?" "The number one investment one can
make is to get out of debt," Martin said. "There's no point in saving and investing
if you're paying high credit card interest."
All this debt has long-term implications for the American lifestyle, Dvorkin said.
"Many people won't be able to retire or they will retire in poverty," he said. "I'm
turning 40. Will I get Social Security as we know it today? Probably not."
Indeed, Federal Reserve Chairman Alan Greenspan warned recently that Social Security
benefits may have to be reduced in order to keep the program financially secure.
A day of reckoning is looming, Cowan fears. As evidence that consumers are increasingly
stretched, he notes that car purchase contracts have gone from three to five years
in length. "That reflects higher prices for cars, less money available for down
payments and the fact that people buy more than they can afford to pay. You see
an awful lot of $35,000 pickup trucks out there," he said.
Dvorkin even suggests that U.S. national security could be on the line. "You can't be the greatest nation in the world and have all your people broke. It just doesn't
work that way."
