My Real Estate Blog

It's a trend that started decades ago. Even former President Jimmy Carter, in his 1979 "Malaise" speech, warned of its effects if Americans continued on their path.

He said, "In a nation that was proud of hard work, strong families, close-knit communities, and our faith in God, too many of us now tend to worship self-indulgence and consumption. Human identity is no longer defined by what one does, but by what one owns."

More than a handful of Americans are guilty of living beyond their means. The symptom of this fact was never more evident than during the recent onslaught of foreclosures during the recession. Nowadays, the average American has 3.5 open credit cards, with an average household carrying credit card debt equaling $15,788. And on that they pay an average of nearly 20% interest!

Just 20 years ago, comparative figures were practically inconsequential in comparison. The average family had just under $3,000 in credit card debt in 1990.

As a country as a whole we are inching towards the trillion dollar mark in credit card debt. The grand total as of March 2010 was $852.6 billion. Compare that to 1968 when consumer credit debt was $8 billion.

The $852,000,000,000 figure doesn't even begin to reflect the amount of debts we hold in non-revolving debt, such as car loans, mortgages, and student loans. It's a scary prospect for a nation that was once touted as the economic leader of the world. We are now a nation of debtors.

Is a change on the horizon for the United States? One positive that has come out of the recent recession is a slowly growing savings rate.  The New York Times reported on August 3, 2010, "A new government report released on Tuesday showed that consumers saved 6.4% of their after-tax income in June, and that this savings rate had shot up as high as 8.2% in May 2009. Before the recession, the rate had hovered at 1 to 2 percent for many years."

It may take a while to repair the damage that has been done by rampant over-spending, however. The New York Times continued that "along with high unemployment, high debt levels continue to discourage consumer spending. American households, though borrowing less, still are paying for their free-spending ways in the credit bubble of the mid-2000s. Their debt levels are far higher than they were in the 1980s and 1990s, when they had less than a dollar of debt for every dollar in disposable income."

Some economists fear that with a larger savings rate comes less consumer spending, something needed to reinvigorate an ailing economy. But in the long-run, a healthier savings rate may mean a stronger economic base for American households.