Drowning in debt, depleting one's savings...
Numbers were released earlier this week on the U.S.'s national saving's rate for 2005. On average, individuals saved a negative 0.5% in 2005. This pretty much means that not only are Americans not saving, they're also dipping into their previous savings too. There are only two other times in American history when there have been negative savings rates - twice, during the Great Depression. Are we in a mass depression now? No. So what is everyone's excuse?
Analysts have been saying that there's a "wealth effect" going on right now. Because of rising housing prices, people assume their personal wealth is increasing at the same rate as their properties are increasing - a "my house is worth more, therefore I can spend more" mentality. I'm sorry, but this is dumb. Haven't people heard cries that the housing bubble will burst soon? Tying one's personal worth with one's property value is only a short-sighted way to view one's worth.
For a comparison, let's go to China. MSN Money's Jim Jubak wrote today that China could be soon fighting deflation. To combat deflation, the easiest solution is to increase consumer spending. While telling people to buy more is easy in America, in China where the average savings rate is roughly 40% of their income, it's hard to suddenly tell people to consume consume consume.
Why is there such a huge difference? In America, people seem to believe that outward appearances suggest wealth. People show off their material wealth in the form of luxury cars, designer clothes, or the newest tech gadget. However, on the inside, we are a society that is drowning in consumer debt. Coincidental? I think not.
Could the real reason Americans are overspending be because of low self esteem? I say most likely. Because when you get down to it, are you spending all this money to appear rich for yourself? Or to appear rich to everyone else?
Analysts have been saying that there's a "wealth effect" going on right now. Because of rising housing prices, people assume their personal wealth is increasing at the same rate as their properties are increasing - a "my house is worth more, therefore I can spend more" mentality. I'm sorry, but this is dumb. Haven't people heard cries that the housing bubble will burst soon? Tying one's personal worth with one's property value is only a short-sighted way to view one's worth.
For a comparison, let's go to China. MSN Money's Jim Jubak wrote today that China could be soon fighting deflation. To combat deflation, the easiest solution is to increase consumer spending. While telling people to buy more is easy in America, in China where the average savings rate is roughly 40% of their income, it's hard to suddenly tell people to consume consume consume.
Why is there such a huge difference? In America, people seem to believe that outward appearances suggest wealth. People show off their material wealth in the form of luxury cars, designer clothes, or the newest tech gadget. However, on the inside, we are a society that is drowning in consumer debt. Coincidental? I think not.
Could the real reason Americans are overspending be because of low self esteem? I say most likely. Because when you get down to it, are you spending all this money to appear rich for yourself? Or to appear rich to everyone else?
posted by L.Su at 10:05 AM
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