For so many Americans, these are desperate, fearful and contradictory times.
More than 20 million are out of a job, have given up looking or settled for part-time work. Those with jobs fear they’ll be laid off, and people trying to move for a job are stymied by homes they can’t sell.|By Gail MarksJarvis, Chicago Tribune
For so many Americans, these are desperate, fearful and contradictory times.
More than 20 million are out of a job, have given up looking or settled for part-time work. Those with jobs fear they’ll be laid off, and people trying to move for a job are stymied by homes they can’t sell.
“How are consumers feeling this month? … Pretty depressed,” said analyst Ed Yardeni, after perusing consumer-confidence numbers in late August.
According to a recent Gallup poll, 3 in 10 workers are worried about being laid off ó a level of fear last seen in August 2009. The number of people saying “jobs are hard to get” was also near 2009 levels in August’s Conference Board Consumer Confidence survey.
Against this backdrop, some economists are urging government leaders to do all they can to get Americans to spend money. At the same time, financial planners are pushing people to save as much as they possibly can.
What’s a person to do with the mixed messages?
Many are doing exactly what they should do. They are saving more. The savings rate recently was at 5 percent of personal income versus the zero when people felt flush with cash as homes and stocks soared several years ago.
People also are using credit cards less and paying down debt, although they have a lot further to go.
Early this year, household debt came to 115 percent of disposable income, according to Yale economist Stephen Roach. That’s a troubling level, but an improvement over the poisonous 130 percent in 2007. Compare it to the more frugal period of 1970 to 2000, when Roach said debt averaged 75 percent of income.
“After a record buying binge that lasted a dozen years, U.S. consumers were stretched as never before,” he said.
Still, not all Americans are troubled, and those with disposable income have been spending ó though more modestly than before the financial crisis in 2008. Despite the depressed mood of the country, almost 47 percent told Conference Board researchers in August that they planned to take a vacation.
This is good news to economists looking for evidence of continued spending.
Clearly, the nation cannot climb from its malaise if consumers hold their cash too tightly, and the Federal Reserve, Congress and White House are trying to induce people to part with their money. The Fed has kept interest rates down, partly to discourage people from saving money in bank accounts. Lawmakers have used measures like cash for clunkers to get people to spend on cars.
Given consumer debt levels, Roach says the incentives encourage “reckless behavior” and won’t heal the economy. Many Americans are what he calls “zombie consumers,” incapable of providing the juice for the economy on a long-term basis.
“Spending retrenchment, deleveraging (or paying down debt), and savings are the only sustainable options for America’s zombie consumers,” he said. “That’s especially the case for 77 million aging baby boomers ó the first of whom are now hitting retirement age” and have saved too little.
The debate in government will continue as policymakers look for ways to get the economy moving while also tackling the nation’s debt.
At the same time, individuals focused on today’s problems might hamper their future if they focus only on their current financial worries. If Medicare and Social Security are reduced, today’s workers are going to need more retirement savings than their parents, and yet may also have a harder time saving if taxes increase.
So although people have become better savers in the past couple of years, many need to become more serious about it.
A rule of thumb is to save 10 percent of pay for retirement every year of your working life. That’s not possible for many, especially if you are unemployed. But if you have a job and feel constrained by past financial troubles, start modestly ó even 1 percent of pay. Then make an appointment with yourself on a calendar to revisit your saving plan in a month and add another 1 percent to a 401(k) or other account automatically from every paycheck.
To stretch the buying and saving power of your paycheck, read Liz Weston’s “The 10 Commandments of Money: Survive and Thrive in the New Economy.”|
