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