Debt Free News

Saving is taking a back seat to spending (part 1)

December 21, 2006

Yes, it is the Holiday season and all, but spending is completely outdoing the savings these days. Many of you have been struggling to keep up with bills and such. Some of you have corrected your old habits of overspending and you are on the road to debt free living. Well, according to the news – too many of us are spending instead of saving.

As we said – it is the Holiday shopping season and it almost seems like a bad time to chide consumers for spending instead of saving – but when you really think about it – it is the perfect time to tell people to tighten their belts and pull their wallets away.

US citizens are spending more than they're earning, and some economists think that the economy is at stake because of this type of overspending.
Tomorrow in the AM, the US government will release its findings on personal income and spending for the entire month of November 2006. For more than a year and a half, this report has announced a negative savings ratio.

In all honesty, this staggering revelation means the number of US consumers are spending more than they are earning in their paychecks after taxes.
In the findings, the savings rate compares after tax consumer earnings to the money spent on a very large range of products. This rate turns negative when US consumers accrue more debt like home equity loans or lines of credit or even when consumers sell an asset(s) so they would be able to spend more money than they earn in their actual paychecks.
The savings rate was a negative 0.6% two months ago. This means that (generally speaking) US citizens spent $100.60 for every $100 the actually brought home in after tax pay. Prior to the current standings of negative rates (that have been happening since April 2005), only 1 month on record (in the late 1940s) had a negative savings rate. This is trouble if you ask us here at DebtFree24.com. Debt free lives are getting to be a lot harder if people are spending beyond their means. Also, as recently as the 2nd quarter of 1985, US citizens were saving more than ten percent of each and every paycheck they brought home. What happened since then?

Some economists believe that the negative savings rate cannot be kept up in the long term. They believe this disturbing trend will cease when US citizens stop overspending which could set off a recession. Most economists believe we may see this happen in as soon as one year. That will be when we notice another high savings rate occur again. Because most of the baby boomers are still in the prime of their earning years, we still have a low savings rate.

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