Sunday, July 20, 2008

Americans and other nations are in debt, but it's not the banks' fault

The article, Given a Shovel, Americans Dig Deeper Into Debt, inspired me to look at international saving rates. All I hear about is how Americans dissave and Europeans are the big savers. In fact, Americans are in good company in the club of overindulgence.

The New York Times reports that Diane McLeod, like many other Americans, has amassed quite a hefty sum of debt. According to the article, “back-to-back medical emergencies threw her over the edge.” The article goes on to blame the lending practices of Citigroup, Capital One, and GE Capital for coaxing her into living outside of her means:

“Years of spending more than they earn have left a record number of Americans like Ms. McLeod standing at the financial precipice. They have amassed a mountain of debt that grows ever bigger because of high interest rates and fees.

While the circumstances surrounding these downfalls vary, one element is identical: the lucrative lending practices of America’s merchants of debt have led millions of Americans — young and old, native and immigrant, affluent and poor — to the brink. More and more, Americans can identify with miners of old: in debt to the company store with little chance of paying up.”

Financial negligence is not the banks' fault

The sob story is overwhelming. The article’s lead picture shows Diane McLeod talking on the phone, supposedly with her creditors. Also in the picture are the following:

- Diane’s fashion magazine that likely cost $5
- A pack of cigarettes that cost at least $5
- A Yohoo retailing $2 at the local convenience store
- A fourth of a $3.33 12-pack of Coke
- 3 ashtrays – clearly, she spends a lot of time smoking on the deck
- A Starbucks frappuccino that cost at least $2
- A local magazine that is not open to the job ads

Grand total for all of the crap on her table is at least $20. Is this the spending behavior of a woman who cares about her debt? Eventually she will just declare bankruptcy and move on. Then her bad habits will pose a cost to others.

Contrary to popular belief, Americans are not the only ones with low saving rates

The American personal saving rate (saving as a % of income) was just 0.4% as of March 31, 2008; that means for every dollar earned, the average American saved just 0.4 cents! Oh man, we really are bad.

However, what the American media does not tell you is that we are in good company. There are key developed economies that also have rock-bottom saving rates:

- Australians save just 0.5 cents of every Dollar earned
- Canadians save just 2.8 cents of every Dollar earned
- The Brits save just 1.1 cents of every Pound earned

In fact, the chart below shows that personal saving rates have fallen significantly for these countries – America is not alone. To be sure, however, there are countries with high saving rates.

Yes, the Germans are frugal

- The Germans save 11.2 cents of each dollar earned.
- The European Union countries save 10.60 cents of each dollar earned.
- Most Southeastern Asian countries, China, Malaysia, Singapore, Japan, are big savers.

With record gas and food prices, eventually consumers may cut back and save a little for the future. But for now and like our neighbors in Canada, we still buy Yohoos and cigarettes…living day to day.

Please leave any comments. Best, Nontruths

1 comment:

  1. Love this article!!! Indulging ourselves in mochas, dinners out, a new pair of shoes, etc. leads us to spend too much. Guess we are driven by "wanting" not "needing". I didn't realize that the Canadians, Australians, and British were in the same boat. Thanks for the information, janie


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