Will We Begin to Spend Less and Save More?

A February 5, New York Times article “Economy Fitful, Americans Start to Pay as They Go” predicts the credit crunch and downturn of the housing market will lead Americans to use credit less and save more. Writer Peter Goodman points out that many people who have been spending out of their home equity will now enter a period of forced restraint. The free ride produced by rising real estate prices and easy credit has come to an end.

Without question, many who could spend freely in the past will now be constrained by lack of equity, but if credit card debt remains as widely available as it has, the basic problem—our spending-to-savings ratio—may persist. My mailbox still contains daily credit card solicitations, and at the mall I am regularly offered store credit cards. As long as the use of credit cards is so widespread, we are likely to have a continuing problem with debt. In a service economy dependent upon consumerism, many people will respond to the impulsive voice in their heads saying, “Put it on plastic,” rather than the wise one saying, “Don’t buy it. Save your money.”

In addition, saving has gone so far out of fashion that there are few social or economic incentives for holding on to your money. If we are going to wean ourselves from plastic and protect ourselves from the uncertainties ahead, we need to create easy mechanisms for putting income away and do a much better job of selling the virtues of a well stocked savings account.