Stressed About Money? Save, Baby, Save...

Are you stressed about money? If so, you are not alone.

According to a recent American Psychological Association survey a whopping 80% of Americans say the economy is causing them to feel stress, up from 66% back in April. Declining GDP, rising unemployment, the nefarious specter of deflation -- the list of economic woes grows longer with each passing day. There is a silver lining in all this, however. Over the past twenty-five years, as a nation, we have become incredibly blase about our personal finances. This economic meltdown is a financial wake-up call of epic proportions for each and every one of us.

Over 70% of Americans are currently living paycheck-to-paycheck according to the American Payroll Association. Think about that. It means the last time you were in a restaurant, at the movies, or walking down the street -- seven out of ten people you passed by are living on the edge of financial disaster. As Financial Literacy Advocates we have given talks to thousands of people from coast to coast. We have met people who can save money on incomes of $40,000 a year and individuals who don't have two nickels to rub together on incomes of $400,000 or more (!). For it matters not how big your income is. If you spend more than you earn, you end up in the same financial black hole. In America today that hole is getting rather crowded.

Until recently, this state of affairs did not seem to be particularly troubling with less than 40% of us even bothering to try to budget -- let alone succeeding at it according to the Employee Benefit Research Institute. The result has been an accumulation of debt that would leave even a champion sprinter gasping for breath. As we roll into 2009 US consumers are carrying over $970 billion in revolving debt (the vast majority of which is credit card debt). This figure is up from $222 billion back in 1989, according to the Federal Reserve.

What happened? How did we veer so far off course from our historic roots as a country founded on the values of hard work, perseverance and thrift?

Culprit number one is a society in which personal finance, like parenting, is expected to simply be picked up "along the way." We are not formally taught the basics of personal finance, and unlike parenting, there is not much societal support for admitting to confusion in the arena of money. Culprit number two is pervasive media images of "middle class" lifestyles that are anything but. For instance, if the Desperate Housewives on Wisteria Lane tried to live like that on real world incomes, they would have been teetering on the verge of bankruptcy by the end of season one. The final and most deadly culprit, however, has been easy access to credit. In years past if you wanted to borrow money, you had to put on your Sunday finest, march down to your local bank, and have a long chat with the loan officer. You were forced to explain what that money would be used for and how you would pay it back. Today, we can all race to the mailbox in our pajamas, rip open a credit-card application, and we're off to the spending races. Stir theses three forces up and you have a World Gone Wild... financially speaking.

The good news is that we can change. In the 1980s and 1990s we took a detour down the path of competitive consumerism. Money became a pawn in a game to acquire more stuff and more prestige. Our national personal savings rate, long in the double-digits, dropped precipitously. At one point it even dipped into negative territory, according to the Bureau of Economic Analysis. Today we are at a unique crossroads in history where we have the opportunity to take back the power. We can choose to spend our money wisely. We can learn to live within our means. We can use our money to help the people and enable the causes we believe in.

Together we can "Save, Baby, Save" -- not just our money but perhaps also our souls.

Manisha Thakor & Sharon Kedar are the co-authors of ON MY OWN TWO FEET: a modern girl's guide to personal finance

Comments

[Joyful Woman]

Yes, you did have to march down in person to get credit a long time ago, but remember, banks and lenders were very racist as well. So, sight unseen borrowing, which took a long time to come about, helped many people of color attain credit.

And don't forget the many local creditors who ripped of poor Blacks who paid 50 times over for a sofa and table.

I hate what credit has become. I also hate how people just want, want, want, including me. I want to save, but how? I have a lot of debt.

[budderbean]

Things were good. We paid our bills on time and all was cheeky. But then it happened.. One late charge.. $60 per month bill was late.. They required $40 late fee the the payment at the same time.
We could handle that.. But the same month the billing cycles changed with another bank and we lost another $40. Then the interest rate changed and they slipped in credit protection.. Then we had a credit line reduced making us over the limit if the $400 wasn't paid in 60 days we would be charged a $0 fee.

We paid and we were good with our bills until they changed the rules. Who can just spit out $400 when you only make $2200 per month So we have lost almost $800 to the bank's this year on fee's.
And now we bailout the people that are brutalizing us with unfair practices? SAVE? yeah right. What about the 4.1 M Americans that are out of work? UNCLE!!!!! Now help us save.. Consolidation loans for the people so we can trickle the economy up.7 year loans from the government at 5% interest to be paid off in 7 years.. Use people tax refunds as a lien.

[BeyondPaychecktoPaycheck]

Completely agree. No matter your income, you will struggle spending more than you make. The old days of easy credit are gone. People looking for simple solutions to be able to spend the same will be (and already are) disappointed. Those looking for simple solutions to be able to save only need to review your article or my second sentence above.

[nomoredead]

Oh...I think a lot of americans are going to get a real fast education how to live on a budget and cut out buying all the junk in the next couple of years. It will be 10 times worse if gas goes back up. Credit cards full, no more home equity and the party is over. You buy only what you NEED not what you WANT. No more 3 dollar coffees on the way to work, $125 per month to watch TV. 12 year olds with cell phones, eating out 5 times a week.......I could go on and on. Maybe the obesity rate will even go down.

[bull2008]

Instead of telling us what we know, it would be better to publish an article with some tips or outlines. How to see the way ahead...how to balance prudence with spending, etc. There's very little of substance here than to be lead to more reports about how bad conditions of the economy are.

While we're all worried about banks and GM, perhaps the conversations should expand to include the people of this country and how we should be projecting our use of our money.

Should I close out my SEP and 401k? Although they've lost about 20%...or should I stick leave them alone because the tax penalty of early withdrawal, etc.

I do agree many people need to adjust their perception of the middle class life. Maybe if someone had some good advice other than "just go shopping," maybe we could collective start the process of healing the whole system together.

[ImmanuelGoldstein]

The problem with this is that when we 'Save Baby Save" then we crash the retail sector,, impoverish factories and put thousands out of work. Kind of hard to save when you don't have any income at all.
I am beginning to believe that the 'business model' of our entire economy is obsolete. As the experience of the last decade shows it's impossible to maintain anything like a full employment econonomy without everyone having at least 3 credit cards all maxed out at once. I think we need a broader discussion about the fundamentals nature of our economy , what it's about, what it's 'for' and how it actually works.

[debwk]

"The problem with this is that when we "Save, Baby, Save" then we crash the retail sector...." this is true, but just try to recall all the retail stores that sprouted up like daisies in recent years, and beckoned us to "Spend, Baby, Spend". It was no accident that most Americans were deluged by credit card offers during this period, that were irresistable and also flattered our ego as well! The banks meanwhile, were betting that most of our purchases would be made using easy credit - and therefore made these institutions richer. If all Americans used cash for their purchases, then we would be able to clearly see that the average income for many middle-class Americans actually declined over a long period of time. Purchases made with credit cards gave the middle-class the illusion that they were living in prosperity, when in actuality, they were not. However painful that it may be, the retail sector needs to crash, and some price deflation needs to occur, for our country to return to a REAL economy, based on much more than "castles in the air" and trying to "keep up with the Joneses". For as we all know, "the Joneses" are one paycheck away from wearing a barrel!

[Don McNay - Huffpost Blogger]

This is an outstanding article that I am going to recommend to my friends. No matter how many ways that people put their own spin on the world of personal finance, the root of all solutions is savings.

[debwk]

It's hard to save when you're still paying for the "party", but we'll get there!

[drkazmd65]

Exactly - have been trying to live (mostly successfully) for the last 2-3 years on just what we make. If I could figure out a way to get rid of the old debt (easy credit credit cards that seemed like a good idea at the time, a truely annoying student loan, and a poorly thought out unsecured line of credit) - savings would be a breeze.

But,.. the old debt is going away, the cars are payed for (finally), and the incremental drop in Credit Cards is going on month to month. I would say "Thank God" for the 5%+5% that goes into my 401k equivilent monthly - at least that is some forced savings - if not for the market tanking in the meantime.

But hey,... at least that is (or will be) something in the future.