Earlier this week, I was browsing around Yahoo! Finance, as I do several times each day, and stumbled across a very interesting set of headlines. They were as follows:
Big, bold headline: Where You Can Find the Best Deals for Cyber Monday
Smaller headline below: Teaching Your Children the Value of Money
Smaller headline below: How Much Do I Need for Emergencies?
Is it just me or are these headlines sending some very mixed messages? I actually laughed when I first saw them because of how ridiculous they seem juxtaposed.
I guess spending less money on holiday gifts by taking advantage of Cyber Monday deals is one way to teach your kids the value of money and a way to save up for emergencies. But that seems too similar to the kind of thinking that got us into our economic mess in the first place. More likely, people spend too much on Cyber Monday (and Black Friday), thus teaching their children nothing about the value of money and leaving little left over to save for emergencies … or anything else.
But one positive change has come out of our long, dark recession and the big bear market: People are saving more.
The most recent article I could find on the subject, from late November, puts the American savings rate at 3%–double what it was last year! Some economists are predicting that it will rise to 8% as families try to recoup some of their financial losses from the last two years.
While consumer spending makes our economy chug along, I applaud the higher rate of savings among Americans. Now, I certainly don’t want our economy to go up in flames or grind to a painful halt, but I can’t help but think that an increase in saving is a good thing. For years, many American consumers have made shopping into a hobby, some going to the mall weekly, or even daily, to purchase (mostly unneeded) stuff. I was beginning to worry that bargain hunting would become an Olympic sport.
So it’s only natural that eventually the tide would turn, that American consumers would put the brakes on, stop overspending and start saving. It makes sense that after years of living on credit and not saving a dime, many American consumers would stop, take stock of things and realize that such a lifestyle can’t be sustained indefinitely.
But things can go too far in the other direction just as easily. Not spending is not healthy for our economy (just look at how excessive saving has kept the Japanese economy in a recession for a decade). It will put even more people out of work and eventually the wheels of commerce will stop turning. While I think that a return to a more conservative way of spending is a good thing, I wouldn’t advocate a total end to the modern age of consumerism.
What we need is to find a balance between overspending and not spending at all. Maybe a whole new wardrobe isn’t necessary every season, but having a few new pieces of clothing probably won’t break the bank. It’s striking that balance that’s going to help the U.S. economy out of the rut we’ve gotten it into, and, more important, keep us on a sustainable growth path going forward.
(On a side note, while I was writing this, someone I follow on our Twitter account wrote a message about how banks are collecting $25 billion to $38 billion in overdraft fees a year. I found that number astounding, but it also further illustrates the point above: That people have been spending way too much money for way too long. Follow me on Twitter by clicking here: http://twitter.com/IconoInvestor)