Christian Debt Recovery

Average Debt Of Us Citizen

September 25th, 2010 |

Author: Gavin

average debt of us citizen

Consumer Debt

Charge it! – Oh, how I used to love those words. We did not have the money to buy what we wanted but we had the plastic and therefore, we could buy it anyway. Let us worry about paying it back later, after all, it was just a small payment every month to repay. Does that sound familiar to you? I think we all have been there, done that and most of us are still doing it. We were young and the credit card offers just came flying in the house. Money was in short supply. The offers sounded really good and we thought they would help us out. If only we would have known then, what we know now.

Unfortunately, this habit does not just affect us, the individual. In his article, Lawernce H. Summers states, that as the treasury secretary he “observed that the global economy depended on the U.S. economy, that the U.S. economy depended on the consumer, that the consumer depended on the stock market, and that the stock market depended increasingly on 30 to 40 stocks.” (1). Now, if I am not mistaken, stocks depend on consumer spending. The more a company sells and the more profits it earns, the more valuable the stock.

Americans are not saving anymore. According to Summers, Americans are only saving 1.3 percent from their annual income. “Because the United States isn’t saving, Americans are not putting their money to work for them. Returns from otherwise valuable investments in business and technology increasingly end up in non-U.S. hands”. (1). The question arises as to why Americans are not saving. From my personal experience it is simply because there isn’t enough to save. I remember when my husband was an E-5 in the Army, and even as an E-6, we just had enough to make it from pay-check to pay-check. We wanted to save money but there just wasn’t any to be saved. We had to survive on a single income. Fortunately, we did not have to worry about health care like so many low and middle-income families have to on top of everything. Today, eight years later, an E-6 with over 12 years of service earns over $ 2,800 more per month. In addition, all the extra duty pay for being stationed overseas or even in a combat zone. COLA (cost of living allowance) for living in Germany has increased by roughly $700 per month on top of the base pay. That is over $1,600 a month more to live on. My husband and I always wondered how junior enlisted could afford those high-end cars and other things. Our first brand new car was a base model Plymouth Sundance. That was all we could afford. We did all right in the military while we were stationed in Germany. Once we moved to the United States, we lost the COLA that we learned to depend on. Soon, there was still a lot of month left at the end of the paycheck. For us, as I am sure as it is for many other families, this is when the credit card troubles began.

Getting a credit card is easy. I was amazed how easy it was. Here I am, a German, living in the U.S., without employment. All I had was my green card and an address. The credit card offers came piling in. Heck, we were desperate and so we took the bait. We, just like everybody else wanted and needed things and thanks to the plastic, we could afford them now. Soon, we had two, three and then four credit cards all maxed out and barely enough money to make the minimum payments. Therefore, one day we wised up. My husband and I decided to get a consolidation loan to pay off our debt and start fresh. No problem, so we thought. Oh, we did get the loan without any trouble but we decided to hold on to the credit cards ‘just for emergencies’. Before we knew it, all the cards were maxed out again. Those cards are like a drug. Once you are used to them, it’s hard to get away. Fortunately, we got older and wiser. We consolidated again, paid off all the cards and that time, we cut them up and cancelled all the accounts. As of today, we do not own a credit card and I would like to keep it that way.

Spending and borrowing is the American way of life. It is advertised heavily and consumers are lured in with low interest rates. Everybody wants what the other person has and more.

“But since Americans were spending at such a prodigious clip, they weren’t able to save much. That created two problems: There wasn’t a lot of capital for business investment and even less to make up for the country’s huge current account deficit – a function of our buying more from foreigners than we sell them.” (2). As a result, foreign investors are buying up America as the Dubai Ports World deal made us realize.

Not only consumers are borrowing. “The U.S. government currently owes $ 2.0 Trillion to foreign lenders.” (3). Is it any wonder for the people to follow in its governments footsteps? Monkey see, monkey do. I guess most people feel if there would not be any money to be given out, banks would not offer it. Unfortunately, this thinking is getting more and more consumers into trouble. Not just in the U.S. but worldwide is the use of buying on credit going up. Many foreigners have traveled to the U.S., watched, and learned how easy it is to get loans, mortgages, and credit cards.

The financial crisis in Asia in 1997 depleted most of the savings of the middle class there and people had no choice but to buy on credit. The Thai and South Korean government went as far as touring the country to promote spending and the use of credit. China even created new holidays so its citizens have more chances to shop. The qualification requirements for obtaining a credit card or a loan were lowered so drastically, that in South Korea, banks accidentally issued credit cards to pets. Lenders offer incentives to lure customers in. According to Kurlantzick article, “the average Korean worker now carries four credit cards (more than 10 million South Koreans carry four or more, while the average bank worker carries between 10 and 15)”. (3). Wow, we struggled with the few we had. Looking back, if we would have saved the money we spent on just the minimum payments, we would have a nice savings account by now. We were however fortunate to not ever have to declare a personal bankruptcy.

In the Czech Republic, two bills are currently under review that could help families out of debt. It sounds absurd to me because they offer a personal bankruptcy. “Under such legislation a family in debt would ask for court protection and if it is able to agree with its creditors, the family finances will be regulated – almost like a company being placed into forced administration – for up to five years. During that time the family will attempt to pay off as many debts as possible, and if that attempt is successful, it will be relieved of its outstanding debts.” (4) The reason this sounds absurd to me, is simply because I do not see a punishment in this but an easy way out. Who is to say that people don’t go out and purchase on credit because in the end, with a little show of will, they could end up getting part of it for free. This just does not make sense to me.

Due to millions of jobs being destroyed, consumer debt levels have increased. The lending rates for mortgages and cars have gone down. Some car companies even offer zero percent financing. (4). “Americans currently spend a near-record 18.1 percent of their after-tax income to cover all debts, with debt service taking the biggest share of income from the lowest-income families.” “There are already indications that the debt burden has become unmanageable for many families and individuals.” Not only low-income consumers are affected. Middle and higher-income people are affected on a growing basis. Jobs in the middle and higher fields are being outsourced to India and other places. All those consumers who used to have a good paying job are now unable to maintain their lifestyle; and we all know how hard it is to break habits. (5).

Summers suggests for the government to “alert its citizens on the dangers of low private savings in an era of rising life expectancies, skyrocketing medical costs, and diminished government benefits.” He also suggests that the U.S. will need help from its creditors as well. (1). Kurlantzick’s approach would be to raise the qualification requirements to attain credit cards. He suggests reasonable interest rates by the lenders and that the applicant has a minimum income standard. (2). Both suggestions make sense to me. However, how feasible are they? In a world where everybody is out to make as much money as possible, it is hard to imagine that banks will cut back on interest rates. After all, that is how they stay in business.

In all my research I have found, another constant factor. It is the fact that companies are outsourcing to foreign countries because it is much more cost effective for them. People in lesser-developed countries will work for a fraction of what it would cost the company to hire an American in America. “Under pressure from venture capitalists who fund new companies, American startup firms are starting up abroad. As a consequence, tech jobs in the U.S. are falling as a percentage of the total. Clearly, tax breaks for venture capitalists are self-defeating when the result is to create jobs for foreigners, not for Americans. Why should the American taxpayer subsidize employment in India and China? … As India and China rise to first world status, the U.S. falls to third world status where the only jobs are in domestic services.” (6) In other words, American companies, who used to manufacture their goods in the U.S., are now having the same things built in a foreign country, to import it back to the States, so they can sell it to the people who used to work for them but are now unemployed because of it. Due to unemployment, they do not have the funds to sustain their life-styles and are more-less forced to buy those goods on credit.

Personally, I am glad my husband is working for the American Department of Defense. The chances that his job will be outsourced are very slim and considering the shortage of people willing to join the military, the retention incentives are very nice. It works for us and it is helping us to finally save some serious money.

Fixing the consumer debt problem in the U.S. will not be easy and it will take a very long time. However, it should be possible if everybody works together. Our government should start by offering incentives to American companies to return their manufacturing plants and technical support jobs back to the U.S. and hire Americans. Once people have work and a steady income they need to be educated on the importance of saving and investing into their local economy. We are all pulling on the same string; we just have to figure out a way for all of us to pull in the same direction.

Sources

(1) Summers, Lawrence H., “America Overdrawn”. Annual Editions: World Politics05/06. 26th ed. Dubuque: McGraw-Hill/Dushkin, 2006. 25-27.

(2) Kurlantzick, Joshua, “Charging Ahead”. Annual Editions: World Politics05/06. 26th ed. Dubuque: McGraw-Hill/Dushkin, 2006. 28-31.

(3) US Federal Reserve. “Foreign Financing of US Government Debt.” Economy inCrisis. Sept. 2005. 6 May 2006. <http://www.economyincrisis.org/congress/foreignfinanceddebt.asp>.

(4) Cameron, Rob, “Experts express concern over rising levels of consumer debt”. RadioPraha. 1 Mar. 2006. 6 May 2006. <http://www.radio.cz/en/article/74327>

(5) Laurier, Joanne, “US consumer debt reaches record levels”. World Socialist Web Site.15 Jan. 2004. 3 May 2006. <http://www.wsws.org/articles/2004/jan2004/debt-j15.Shtml>

(6) “The Great American Job Sellout.” Economy in Crisis. 2005. 6 May 2006. <http://www.economyincrisis.org/articles/printarticle.asp?ID=54>

About the Author

As the mother of two awesome teenage sons and the wife of one of the best soldiers in the U.S. Army, my life had to endure many challenges. Growing up in a physically and mantally abusive home was just the beginning… In 2004 I underwent gastric bypass surgery and lost 180 lbs along with the emotional baggage that had accumulated. My positive attitude and the ability to look at situations from different perspectives has helped me make it through it all. Not only did I “make” it through, but I am still smiling and standing strong. Through my years as a military spouse, I have had the priviledge to talk to, inspire, and empower so many people. It just continues on and I am happy to be able to share and help empower people through positive thinking to see different perspectives.