A national New Year's resolution: reducing our debt

Andrew Yarrow, Baltimore Sun, 12/31/2014

While our $18 trillion gross federal debt is now larger than America's entire economy, at least as troubling is the nearly $12 trillion in debt that individuals and households have. The statistics are grim. While median assets have declined by a third since 2003 and are below those of 15 other countries, median household debt has nearly tripled during the past 20 years, and the typical American household's debt has exceeded its income since 2000.

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Subject: Thrift

More by: Andrew Yarrow

One of the most common New Year's resolutions is to do a better job at managing our money – save a little more, pay down your debts, plan for our financial future.

Sadly, one reason it may be so common is that Americans, by and large, do such a poor job of this at both the personal and national levels. While our $18 trillion gross federal debt is now larger than America's entire economy, at least as troubling is thenearly $12 trillion in debtthat individuals and households have. The statistics are grim. While median assets havedeclined by a third since 2003and are below those of 15 other countries,median household debt has nearly tripledduring the past 20 years, and the typicalAmerican household's debt has exceeded its income since 2000.

After five years of modest debt reduction in the wake of the 2008 financial crisis, the amount of money that individuals owe banks and other lenders is again on the rise. We have wallets bulging with credit cards, on which we owe about $900 billion.Only half of Americanshave enough savings to pay off their credit-card debt, according to Bankrate.Older Americanshave the highest levels of debt outstanding on their credit cards, according to AARP, andwomen and minoritiestend to have higher-than-average debt. Student loan debt shot up in the last year by11.5 percent to $1.12 trillion, as many college grads struggle to pay off six-figure debt working multiple low-wage jobs for which they are over-qualified.

The United States may be the world's richest country, yet it hardly feels that way for the 140 million Americans – 44 percent of the nation's people – who either have "negative net worth" (meaning they have more debt than assets) or have only enough money saved to pay for up to three months of modest expenses, according to the Corporation for Enterprise Development. These "liquid asset poor" Americans defy stereotypes: 89 percent hold a job and about half have some college education and are two-parent households. For them, if an unexpected medical problem arises, their car breaks down, or other emergencies occur, the only option is to take on more debt. But even that may be impossible. Despite the countless, annoying solicitations for new credit cards,more than half of Americans have subprime credit scores, meaning that banks won't lend them money and they have to turn to family, friends or payday lenders charging exorbitant interest rates.

Although there are many reasons for Americans' personal debt crisis, two loom large: Too many people are paid too little to make ends meet, much less save. And, despite occasional calls to save, the calls to spend are much louder and more enticing. Raising wages is an obvious answer, but for the tens of millions of indebted Americans who are nominally in the middle class, the answer is cultural and behavioral.

Ideas like "thrift" may be seen as a downer, an antiquated value that connotes a miserly life bereft of the many pleasures of modern consumer society. However, that was not always the case. In early 20th-century America, thrift – which meant much more than just saving money – was the rallying cry for many civic, professional, business and other organizations, and was enthusiastically embraced by millions.

The YMCA, teachers, the banking industry, government, temperance advocates, anti-poverty activists, every president from Teddy Roosevelt to Herbert Hoover, among others, actively promoted thrift. Children were encouraged to save at school-based savings banks, and an annual National Thrift Week that began each January 17 on Benjamin Franklin's birthday was observed in cities and towns across the country.

This movement was a response to social problems like waste, poverty, overspending and even the destruction of natural resources like forests and water – problems not too dissimilar from ones we face today. In 21st-century language, a thrift ethic includes "asset building" through policies ranging fromautomatic IRAs,individual development accounts for low-income Americans and government-seededchildren's savings accounts to"save to win lotteries" and restricting predatory payday lending. And, for many Americans, it also means making and keeping that new year's resolution to not spend beyond one's means and save for the future.

Andrew L. Yarrow, is a historian who has taught on 20th-century America in American University, a former New York Times reporter and author of "Forgive Us Our Debts: The Intergenerational Dangers of Fiscal Irresponsibility." His latest book is "Thrift: The History of an American Cultural Movement". His email is andrew.l.yarrow@gmail.com.

This article originally appeared here.

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