Personal Savings Rates Plummets

 

For 11 months in a row, Americans as a whole have spent more than they have earned. According to the Bureau of Economic Analysis, the personal savings rate fell to negative 1.6 percent in April, a trend that has been progressively worsening since September 2005. In June last year, the savings rate turned negative for the first time since the Great Depression.

Since consumer spending accounts for two thirds of U.S. economic activity, the question is: How much longer can Americans spend more than they earn?

Take for example, Tim and Caren Mayberry of Yulee, Fla. According to USA Today, Tim’s job as a senior bank loan officer “qualifies him as an expert at lending money,” but it certainly doesn’t mean that he and his wife know how to save it. Though Tim makes more than $100,000 a year, and Caren makes $65,000 per year as a physical therapist, they say they’re still “absolutely unable to put money aside, except with retirement accounts” (May 22).

Their plans for a new hardwood floor and a pool will probably push them further into debt. The couple owe $285,000 on their mortgage on top of a whopping $125,000 in other debt, including credit cards, and loans on cars, a boat and a motorcycle—all depreciating assets. To pay off their credit cards, Caren is making minimum payments; Tim usually pays more on the card with the lowest balance.

Growing numbers of Americans have allowed themselves to get into this same predicament as a result of spending money they don’t have. At almost all levels of society, debt burden is a problem. Eventually, our creditors will not only refuse to extend our credit, but demand to be paid. That will take a toll on the economy and our standard of living.