Consumer Spending out of Control
A recent,
New York Times Article
claims that consumer spending is getting out of control. As debts mount
within the average American household, the consumer saving rate has
plummeted to less than two tenths of one percent as of October. The
article illustrates this with a series of stunning examples:
- “… a family with take-home pay of $40,000 saves on average $1.50 a week.”
- “The average American household now spends 13 percent of its after-tax income
to pay debts, the highest percentage since 1986. Much of it goes to pay home
mortgages and car loans, but the average American household is also carrying
more than $8,000 in credit card debt. Every 15 seconds, someone in the
United States goes bankrupt, five times the rate in 1980.”
- … "fixed costs" - mortgage, child care, health insurance,
car and taxes - take up 75 percent of the income of today's two-income
family. By contrast, those costs represented about half of a
middle-class family's income in the early 1970's.”
The article seems to imply that the problem is not so much impulse
buying but a simple increase in the cost of living combined with a
consumerist culture. A symptomatic example is that of Antoinette M.,
who according to the article is suing American Express for foisting
credit card offers on her, allegedly causing her to rack up over a
million dollars in debt on a series of shopping sprees.
We obviously don’t recommend suing your credit card company, but the
article illustrates an important point. Reducing and eliminating your
debt by any means is a major step towards being able to retire easily,
and may allow people to buck the trend and actually save money up in
preparation for retirement.