By Shreyas NanavatiIndividual savings rates in America have risen to 6%. Studies indicate the savings rate will reach 8%. All it took was a crash in the home and stock markets, high unemployment and fear of a slow, painful recovery to turn our debt-happy society into a nation of savers.
Not only are individuals and families cutting back, companies continue to trim expenses in hopes of strengthening their balance sheet. As long as the consumer and corporate sectors feed off each others' uncertainly we're in a a vicious cycle.
Advertisers have been trying to link spending with patriotism. It's true, for the economy to prosper, consumers and corporations need to pull out their wallets, but is it patriotic to spend?
Incentives Favor Saving
Key market forces are fueling our growth in savings. Credit is harder to come by. Home equity loans, once a cheap source of cash, are no longer a given option. In addition to deteriorating home prices, investment and retirement portfolios are no longer a source of security or riches. On top of that job loss, record government debt, a slow to materialize stimulus package and uncertainty about the future of social security have all nudged our spend-first culture to save more, manage debt and make rational spending decisions.
Balance In Due Time
As savings accumulate, economic uncertainty dissipates and the stock/home markets stabilize these patterns will tip in favor of spending. Until then, it’s not our obligation to support the economy by consuming things we do not need or can not afford (cars for clunkers enthusiasts, heed my warning). Do what is in your best interest, eventually balance will be restored and the nation will be stronger for it.
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2 comments:
Hey Shreyas,
Thats a tricky question. I asked the similar question to my readers. Is the cash for clunkers really helpful? Not really according to me. Obviously, economy depends on consumers to spend but cash for clunkers is like letting people go on spending spree when we need to save up for future which is uncertain. By saving, you are putting money in the bank account and bank gets more money to lend, relaxing the credit crunch and business gets more money to slowly start their business cycle. So saving helps too, so there is nothing wrong in being savings and not spending.
It is your house in fire, you should take care of it now before worrying about other person house.
Moral question, is selling to people a product beyond their means patriotic? We ask question about why consumers aren't shopping, but fail to question the tactics that lead us to this situation in the first place - tactics in many cases that were deemed ok by the government or lacked regulation in the first place.
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