The Bad Spending Habits of the American Public

Card Image
Posted by The Savvy Retiree on March 17, 2016 in Money Saving Strategies, Personal Finances

“A nickel ain’t worth a dime anymore.”
Yogi Berra

Sunshine overhead. A fresh breeze in from the south. The leaves beginning to turn from deep green to a soft yellow.

It’s too fine a day to talk about money…but we promised you we would.

So, we ask the Gods and The Savvy Retiree Daily readers alike to pardon us…as we return our attention to the unholy world of Mammon.

You will recall, if you’re keeping pace with our thrice-weekly scribbles, that we’re investigating systemic collapse. And among the many things that can—and eventually will—go belly up is the world of money.

Think wealth independence. Retirement security. Having a “few bob” in your back pocket.

Now, could you get by without those things?


You could sleep on a church pew…or a friend’s couch…or call an ex-lover and plead your case.

But these propositions are what we might call “sub-optimal.” At best. And they’re certainly not living independently, which is our main beat here in these pages.

In the last issue, we looked at the impact of compound inflation on your savings. Think of it as the evil twin of compound interest.

We’ll let Albert Einstein summarize the important difference for us:

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”

[Thanks, Bertie!]

Over the next few issues, we’ll take stock of a couple of nasty trends presenting a threat to your hard-earned…and what you can do to nullify their impact.

But let’s back up a bit. First, everyone knows the basic path to wealth accumulation: Spend less than you earn and save the difference.

It’s not exciting…but then again, neither is flossing your teeth or changing your oil or cleaning the gutters. You can choose not to perform these “boring” chores, of course, but the “negligence bone” is still attached to the “consequence bone” either way.

To paraphrase a popular saying…

You can ignore reality for long enough (plaque…wear and tear…fire hazards) but you can’t ignore the consequences of ignoring reality (decay…motor seizure…flaming infernos).

Moreover, the opposite of savings—spending more than you earn and borrowing the difference—is a surefire path to financial perdition. Just ask Uncle Sam!

And yet, as obvious as these truisms seem, there is no shortage of work for dentists, ambulance drivers, and fire fighters.

And debt collectors.

In fact, the latter métier might be on the cusp of entering a new golden era…

Research suggests that roughly two-thirds of Americans have less than $1,000 in their savings account. One in five (21%) don’t even have a savings account.

Faced with an emergency—imagine a trip to the dentist or the mechanic—respondents to one survey said they’d be forced to either reduce spending in other key areas (26%), borrow from friends or family (16%) or whip out the plastic and put it on credit (12%).

“And among those who had savings prior to 2008,” the findings revealed, more than half (57%) said they’d used some or all of their savings in the Great Recession.”

We’ve heard it said before that the bad financial habits are “cultural.” That there’s a “cult of instant gratification” in the “consumerist” (i.e. western) world.

There may be some truth to this…

In a past and distant life, your rambling editor managed a financial publication from an outpost of his own choosing in Taipei, Taiwan.

Partly we moved there to “keep an eye on emerging trends in the Far East”…partly we went for the dim sum…and partly because it was somewhere between Dubai (whence we’d just come) and Buenos Aires (to where we were heading).

During our time on the tiny island, the research company for which we worked released a “Big-Budget Movie,” all about the gross indebtedness of the world’s largest economy. (You might have seen it: I.O.U.S.A.)

Basically, it was a warning of the “road to financial perdition” about which we alluded above. (Counsel that went without heed, as it turns out; the national debt is roughly double today what it was then, in 2008.)

The premier screening to which we were invited—was held in a fancy, hi-tech cinema near the Taipei 101 building. We attended…with a decidedly lo-tech pencil and notepad in hand.

After the movie, we asked a few of the attendees (all Taiwanese) what they thought of the central theme: debt.

“It’s scary,” one young woman quivered. “I barely even save half of my income!”

“Yes, yes. Very worrying,” added another. “To be in debt must be… just… so… very… Well, I never want to know.”

Taiwan’s personal savings rate typically figures between 20-25% of average annual income. Mainland Chinese save roughly double that. Indians bank 30%… Qataris, 60%.

By contrast, personal savings rates in the U.S. have been in a long and seemingly inexorable decline for roughly half a century. Having peaked at 17% in 1975, they’ve since dwindled to a paltry 5.2% in 2016.

Maybe the urge to “keep up with the Joneses” is partially to blame. But, as far as we know, scientists have yet to identify the “spendthrift gene.”

Surely folks elsewhere desire to “keep up with the Changs…and the Patels…and the Al Waleeds.”

And yet, even if Americans wanted to save…if a sudden urge to live within one’s means swept across the land, from sea to shining sea…if a collective desire to reign in the spending and refill the coffers took hold tomorrow…

There are systemic headwinds discouraging thrift and frugality.

One is a war on savers. The other, a war on cash itself.

T&P Tool Shed
By the staff of Truth & Plenty