On January 29, 2007, the
Commerce Department released statistics indicating that Americans achieved
a negative personal savings rate -- minus 0.5% -- the lowest since the
Great Depression. As a whole, Americans not only didn't save, they dipped
into savings to support their lifestyle. Anyone surprised?
I'm not. Despite all the positive reports concerning
our economy, the fact is that many Americans are still hurting -- and it
doesn't take an advanced degree in Economics to figure out some of the
reasons. Here are just a few that quickly come to mind -- all tied to
monthly cash flow:
Rising
cost of healthcare. According to a study released by the
Henry
J. Kaiser Family Foundation, the cost of health insurance rose at a
rate more than triple that of workers' earnings between the years
2004 and 2005. To cope with increased costs, employers are beginning to
reduce coverage and require the employee to pay more of the monthly
premium.
Increased
costs of credit. According to Bankrate.com,
the prime rate more than doubled between 2003 and 2006 and the federal
funds rate increased by over 400%! Most variable credit card interest
rates are tied to one of these rates, or to the LIBOR (London Interbank
Offered Rate). When these rates go up, so do the rates on all variable
interest rate credit cards.
But that's not all. Very
quietly in 2005, federal legislation was passed that may have
substantially increased the monthly minimum payment requirement on your
credit cards, starting in 2006. And banks have been looking at your
credit history differently too. Let's say you've had a pristine payment
record with Bank A and Bank B, but recently missed a payment date with
Bank C on a couple of occasions. You were only a day or so late; that
shouldn't be a problem, right? Wrong! Bank C will most likely saddle you
with late penalties and an interest rate as high as 30% -- and your
interest rate just increased for Bank A and Bank B too, thanks to a
"universal default" clause in your card agreement . Your
pristine record doesn't count, and your minimum monthly payments just went
through the roof! Think this sounds like usury? Think again! Your bank is
probably federally chartered; if so, state usury laws don't apply.
Variable interest mortgage payments have also
increased. You took advantage of the low interest rates and bought a
bigger house than you needed. After all, the interest was tax deductible,
the house was an investment, and the payments were low.
Now the variable interest rates are high, so monthly
payments have increased dramatically. You may have to sell the house, but
you're worried you can't unload it without getting killed in a market
filled with other sellers just like you. So you keep struggling to make
the payments while you wait for better days.
The
price of energy. The cost of a barrel of oil hit $77 in
2006. That had a ripple effect throughout the entire economy. Your
electricity bill and the cost of gasoline at the pump went up. Increased
production and transportation costs on food, clothing, medicine, toys, and
just about everything else were passed along to the consumer as well.
Some economists have theorized that rising home
prices from a boom market created a "wealth effect," allowing
Americans to feel more wealthy and support greater spending while dipping
into savings to support their lifestyle. I certainly would not dispute the
opinions of these learned experts -- but I would assert that in many
cases, Americans had negative savings because they just didn't have much choice.
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