Budget Basics
Pennies saved Americans dig deeper into debt, fewer building nest egg
by Marc Beauchamp
Record Searchlight
The national economy's rebounding, the bulls are running again on Wall Street and
rising housing prices in Redding - up 18.56 percent last year alone - and elsewhere
have many homeowners feeling flush.
But north state credit counselors
and bankruptcy attorneys are fretting over other, downright troubling statistics
- among them, the plunging national savings rate, record levels of bankruptcies
and a growing mountain of credit card debt. In 1980, the personal savings rate
was 9.3 percent. At the end of 2003 it stood at just 1.3 percent, meaning Americans
are saving just more than a penny from each dollar of after-tax income.
In the past decade, consumer debt has more than
doubled, to $1.98 trillion. That debt - which includes credit cards and car loans
but not mortgages - translates into some $18,700 per U.S. household. Credit card
debt stands at $735 billion, or nearly $7,000 per household. More ominously, since
about 40 percent of credit card users pay their balances in full each month, the
per-capita debt of those who carry balances is closer to $12,000.
Debt has risen despite record numbers of mortgage
refinancings in recent years. Many refinancings yielded cash that consumers used
to pay down credit card balances. Personal bankruptcies rose 5.6 percent last year
- to a record 1.6 million.
"A large number of people are saving (for retirement),"
said Dennis Cowan, a Redding bankruptcy attorney, noting that workers are contributing
to IRA and 401(k) retirement plans, money that's not counted in federal statistics
on the national savings rate.
The problem, Cowan said, is that "the credit card
has replaced the standard savings account." Instead of socking away enough "rainy
day" money to live on for six months, as financial experts recommend, consumers
are using plastic to pay for emergencies as well as consumer goods, he said. "People
should be saving not just for retirement, but for big ticket items," Cowan said.
Charging such purchases can dramatically increase their price.
"What people don't realize is they're buying a commodity
that dies in the short term, but they're paying it off in the long term" if they
make the minimum payment to the credit card company, said Joe Rodola, director of Consumer Credit Counseling Service in Redding.
"Heaven forbid if you pay for a lunch or a set of
tires for 25 years," he said. "We grow up in a debt society," said Jeremiah Martin,
chief
executive of Financial Health Services of Redding. "Instead of savings and
investing, too many Americans are dumping that money into high-interest credit cards."
"The savings rate is pathetic," said Howard Dvorkin,
president of Florida-based Consolidated Credit Counseling Services. "People are
loading up on debt and credit cards and sucking the life out of their mortgages
to finance lifestyles they can't afford," Dvorkin said by phone from his Fort Lauderdale
office. "It's a terrible situation."
