My opinion on personal finance news: America's debt-financed culture

I agree - I know people whose idea of increased wealth is a new credit card. And I have quit trying to convince them otherwise - in fact, I just try to distance myself from those people.
But, we have been hearing for years that the sky is falling - so maybe they are the smart ones and perhaps it is we the fiscally conservative who are the fools.
Just something to masticate (Southern Baptists: please look this word up before getting upset).

mas·ti·cate /ˈmæstɪˌkeɪt/ Pronunciation Key: [mas-ti-keyt] verb (used with object), verb (used without object), -cat·ed, -cat·ing. to chew.

Great food for thought. Chew it over but, by all means, let's take action and SAVE ourselves. Mr. Bush, right after the election results, encouraged us all to go SHOPPING -- it grows the economy! Bull! It grows the economy for some and shrinks it for others. I guess that he believes if we buy enough goodies we'll forget which group we're actually in.

Here's an idea that may never surface in congress but sure will give them something to chew on. Let's write legislation to deny all deficit spending for war. Let's create a surcharge for the war -- a tax to be levied for each year of war IN the year the war is fought! Think of the money that could be put to CONSTRUCTIVE things: like education, health care, better security here at home.

Let's insist that the banking and lending industries provide some incentives for people to actually save some money, instead of mortgaging their lives away to buy "stuff."

When my father died over 10 years ago, he left my mother nearly $100,000 in credit card debt. Scared straight? You bet! Currently, my only debt is my mortgage and I'm selling the house.

Missy,
Why should the banking industry provide incentives to save? They already offer an assortment of savings vehicles, people just need to take advantage of what is available.
Our tax code has disincentives to save. Maybe if those could be removed it would help (but I doubt it).

I ave always been a saver, and have borne a disproportionate tax burden because of it.

Saving is one thing. We should only save to gain enough to invest. Banks don't offer pee-didly when it comes to interest on savings accounts. The best rule of thumb for me has been to save only enough to invest in something that provides regular income, the best type is something that is not taxed through Social Security, such as rental income from investment in rental properties. This also has the added advantage of letting other peoples money help to build your wealth.
I started with a used trailer I bought for four hundred dollars, parked it in my yard and rented it out for 200.00 a month. The 200.00 dollars a month paid my mortgage payment. See where I'm going with this? The government wants you to spend your money on retail items to keep the economy running along, smoothly. Same principle, the Corporations get rich on other people's money. Invest in yourself.

Pat,

You're absolutely correct about the tax disincentives -- I've always been a saver too and feel as though I'm penalized for it. As for bank products, they are not competitive -- and they don't have to be. Poor, noncompetitive products coupled with tax disincentives, or lack of incentives, make the mattress look good.

Sally r. -- there you go! I had a provision in my 401K re real estate, so did just that and glad I did, because it went the way of Enron.

Congress is soliciting testimony re submortgage lending, regulations and standards.

It's definitely BUYER BEWARE. Educate yourself first and check and double check everything. If you have no experience, or are not sophisticated financially--and I daresay most of us are not as sophisticated as we think -- stick with a mainstream lender of proven substance.

Sally R. I like the idea of having my next egg and sitting on part of it too.

I think the underlying problem is a pervasive culture of greed. Many do not buy the house, car, clothes, extras they can afford but, rather, overextend so they can keep up with the Joneses. Here in Fort Worth, TX, the idiot powers that be are so excited about the housing boom, but fail to mention all of the neighborhoods going into foreclosure because people bought more house than they could handle.
I think you make a great point and give sound advice.

Please keep the conversation going. I'm thoroughly enjoying this! I'll respond to everyone as soon as I'm off my deadline for two personal finance articles I'm writing on assignment.

I've been trying to get get some of my friends to save/invest. I'm only 17 but you'd be surprised how open many people are to the idea, even at my age. I started investing, putting about $1300 in a portfolio fund (large/small cap stocks, international stocks, bonds, and cash all in one fund) this summer and I'm up over 10%. This January, I got my sister to put $3500 in a similar fund (a larger percentage bonds). I have 4 friends who have showed interest, including one who has about $4000 saved and another who has about $10,000 saved, both having their money in regular bank accounts (which really looses money, as the interest rate is less than inflation).

Me helping my friends to invest doesn't only make them money in the short term, but will hopefully help them get into a lifestyle of having more secure finances and understanding the value of saving money. A lot of people my age either don't save any money or their parents force them to save money and they have no control over their money. Because of this, they don't know how to budget. And then it surprises their parents when they go to college and blow their credit rating by buying things they can't afford.

Keen observations Daniel. Kudos to you for putting your money were your mouth is, and for encouraging others to do the same thing. Thanks to just compound interest alone, your money will be worth so much more when you retire just because you starting saving early. I'm very impressed that you've accomplished so much at such a young age. Aside from that, your comments are obviously educated. Where do you turn to for your financial advice outside of Gather.com?

Well, my dad was a professor mostly in personal finance, so I guess you could say it runs in the family (not as much with my brother and sister, but anyway.....). Ever since I started investing, I've kinda been hooked to CNBC, finance.google, NYT business section, just to name a few.

I've always saved my money. It's not that I don't spend money, it's just that I actually consider how much I want something before I buy it. I've saved over $1500 and I've never really had a job, besides working odd jobs for my mom's real estate, shoveling snow, etc.

My parents have always made sure their finances were secure. They kept away from the tech bubble, aways saved for college for me and my siblings, always paid off credit cards, etc. They also managed to pay off the mortgage in 8 years. Thank god they did, because my dad has had to retire (disability-- Neurological problems, but thankfully nothing that has effected him being a parent, just prevents him from working) and the real estate market has gone to crap (my mom's a realtor) just in the past year and a half or so, so my college education could have been at risk and quite possibly have lost our house.

One thing that helps me save money is to consider purchases in terms of beer money. For example, is this new computer game worth $50 in beer money--as you might think, the beer money usually wins out.

Daniel A., I like the fresh take on finances here. It sounds like you have some great role models.

I'm 26 and the richest I have ever been. That might seem normal, but I only have $700 to my name. Sadly, I am better of (net assets) than many Americans with more things than I have. I am +700, just two years ago I was - 3000. I'm just lucky I don't have student loans. I have a friend that owes $50,000 from undergraduate school!

Now, just a minute! I have at least 6 women friends who were left in debt and destitute after divorces. Personally, I spent 11 years trying to pay off the legal bills, feed, clothe, and house my kids, and work full time. I finally had to declare bankruptcy, which was depressing, expensive, and unfortunate.

Katrina, you and your friends aren't alone. The bankruptcy attorneys I've talked to say that a bulk of their clients are in that position because of situations outside of their client's ultimate control: like divorce, medical expenses and so on.

I take your point to be that going further into debt isn't a choice for many people, and so you're taking exception to my post's inference that the solution is as simple as "saving more." Am I interpretting that right?

If so, just know that I've been in the similar situations as you. I'm not on a soap box here. Rather, I'm hoping we can all take this grim fact (the sucking from our personal wealth and the need to be prepared in the even there is an economic downturn) and use it to inspire us to take the actions -- like you did with your bankruptcy -- that will help put us back on the right track to building rather than depleting our assets. Are you with me on that?

Tyler W., congratulations on pulling yourself out of debt and into the black. Thankfully I had no student loans either, and that sure was a relief after graduating from college. I'm guessing you were like me and worked your way through, which also made an easier entry into the job market given the experience I then had over other recent graduates. Personal finance author Loral Langemeier (a Gather guest columnist) recommends putting 10 percent of every paycheck or other income you get into a wealth-building account to use only for investment opportunities. That could be your next step, if you're up to it. I'm doing a portfolio challenge right now at CNBC that's helping me with my stock picking strategies. The goal is to start confidently self-directing my wealth account savings into stocks once this process is through. I'm working to try to offer a similar competition through Gather and its Money Channel sponsor, Charles Schwab. I'll keep you posted if this looks possible!

Thanks, Jennifer - didn't mean to rant! But I've read so many comments on Gather that imply people with financial problems are out of control spenders it makes me see red. A few comments about credit card companies - one, it's not true that if you call them and ask for a lower rate they'll do it. Not if you're a woman, anyway. I've known a few men who got a lower rate, and one who got a buy-out (he paid $7,000 cash against his $18,000 debt and wiped his debt out), but no women. Two: my credit card payments suddenly doubled in January ( just after Christmas, just when fuel oil hit its highest rate), even though I had been paying over the minimum, never missed a payment, and always paid on time. Where are the credit card companies brains?

The law changed for credit card payments about a year ago, and stipulated that minimum payments must make a great dent in paying off the overall due amount than just interest. Hence, many credit card companies did indeed double their required minimums. Additionally, some cards will bump your rate if you miss or are late to payments for other companies. This may seem inconceivable, but I've read that terminology in a number of credit card contracts lately.

Katrina, I feel your frustration here. However, I would still try calling your credit company to figure out what you could do to get a rate reduction, even though you are a woman. I have been able to do this myself, reducing some bumped-up rates by as much as 10 percent and getting "one-time courtesy" reversals of over limit or late fees.

If the person you initially talk to says they can't help, then ask to talk to someone who can -- and keep on asking until someone lowers your rate. State your case just as you did here -- that you've been paying over the minimum, haven't missed any payments, always pay on time, and would like to continue as their client but you need your rate decreased to reflect that. You have an excellent case. Pitch enough people and enough times, and you're bound to get the rate drop.

Good luck! Please report back here on your progress. I'd love to hear your story.

My progress? Well, because of the large increase, no help with lowering APR, and totally unsympathetic credit card companies, I finally had to find a lawyer and file for bankruptcy - something I had held off for 12 years.

Oh, I see. Bankruptcy was the end result of not being able to negotiate with your creditors. What a shame that you didn't get the respect you deserved with this companies. Too bad they won't be getting any of it now. ; )

I've read quite a bit lately in various business books and business pages that credit card companies need to shape up. I was very disappointed with my two credit card companies. Plus, you honestly can't help feeling like a total loser when you file for bankruptcy.

Completely understood Katrina. I interviewed a woman a couple of months ago who shared her story, posted here. Her story leads a post I did on the business aspects of the more cumbersome new bankruptcy laws in the U.S. I plan to follow up on that post with further articles interviewing attorneys with clients going through this process. They resoundingly echo what you say: Bankruptcy is a last resort for their clients and most should have filed for bankrutcy well before they actually did.

If Americans suddenly decided to live within their means, and to save money, it would cause a worldwide economic crash. The worldwide global economy depends on American spending. The Japs are a savings oriented people -- the result was they sent themselves into a deflational recession. The only thing worse that could happen to America besides a severe inflational driven recession would be a severe deflational recession. You think inflation hurts, you can't imagine the economic pain that deflation could cause.

I find this article very informative, Jennifer. I did read something either in the Boston Globe or in Newsweek not long ago about the discrepancy between the definition of "savings" as it is often used versus the reality of "savings."

Spending habits are way out of control, as you mention.

The writer did discuss the relative value of investments (that are up), the value of real estate (that HAD been up), and other factors, as weighed in against the oft-quoted low US savings rate.

I'm sure you know (more than I) exactly what I'm talking about here. I wonder if you might consider doing a feature generally on this subject, something about the US consumer's total net worth or value in relation to the oft-quoted low savings rate.

Kathryn - you have hit on the aspect of this that has been a sore spot with me for years. The savings rate is a number calculated by subtracting the amount of consumption from gross wages. It does not EVER actually consider moneys on deposit ANYWHERE.

Consequently, the money I send to my money market account with a brokerage company is counted as CONSUMPTION, not savings.
The interest my money market account earns is not considered savings or income. The capital gains (or losses) I make on my stock investments are not considered the savings or income.
The money I send in to prepay principle on my mortgage is counted as CONSUMPTION.

This number is highly flawed. Even with all of these statistical problems, it's still clear that a portion of the american public is consuming more than they earn.

RE: I'm sure you know (more than I) exactly what I'm talking about here. I wonder if you might consider doing a feature generally on this subject, something about the US consumer's total net worth or value in relation to the oft-quoted low savings rate.

Kathryn, I like this idea. I will definately put some thought into it. And Pat, you're right on the money with your analysis. Maybe this article would be better suited for you... I'd love to hear your full-blown analysis on this subject. Post a link here if you follow this on your blog.

people have to invest the money they work hard for. banks and other institutions put your money into the global market and get 11 - 12 % on it then give you maybe 1 to4%. I am working hard to help people get debt free and financially indept.