By: Andrew L. Yarrow
January 17, 2012
The debt crisis we're ignoring
While Washington has spent the last year (and much of the last quarter-century) fighting about the national debt, most of our leaders have blithely ignored America's staggering level of household debt. The subject has barely been broached by the White House or in the campaign for the Republican presidential nomination.
Despite an uptick in the savings rate following the Great Recession, U.S. households are still struggling to build wealth. Indeed, that modest increase in the personal savings rate - to a still-paltry 5 percent - stems from debt repayment, not asset growth.
Thanks largely to the housing bust, Americans' average assets fell 23 percent from 2007 to 2009. By the middle of 2011, household debt stood at 115 percent of after-tax personal income, according to the Federal Reserve. As household debt inched downward between April and June, household wealth also fell.
Worse, one in four U.S. households has a negative net worth, or more debt than assets, according to the Economic Policy Institute. One in 45 households suffered a foreclosure in 2010, and an estimated 1.5 million Americans filed for bankruptcy last year.
Most of those who aren't in the red still have scant savings. Fifty-six percent of workers and 54 percent of retirees have less than $25,000 in savings, and only 45 percent of workers participate in retirement-savings plans, according to the Employee Benefit Research Institute. Even relatively affluent Americans have frighteningly little in the way of assets.
Of course, millions of Americans can't save because they can't earn more than enough to cover their basic needs. With a quarter of American children in poverty, a sixth of workers unemployed or underemployed, and a fifth of adult workers earning $10.65 an hour or less, we need to generate more good jobs to help families build assets.
Yet most Americans can save, and we have done so before. As recently as the 1980s, the U.S. savings rate topped 10 percent. And looking ahead, younger Americans will likely have to save more for education, health care, and retirement.
Which brings us to the oft-maligned concept of thrift. It's a topic that would have been in the news nearly a century ago around this time of year, when the nation kicked off National Thrift Week on Benjamin Franklin's birthday, which is today. Thrift Week, which is being revived in Franklin's hometown of Philadelphia, promoted not only saving, but also the value of conservation, efficiency, and frugality.
Then, as now, the call to thrift was spurred by a sense that Americans were spending beyond their means and wasting resources. "The American people are prodigal in the highest degree," wrote Arthur Chamberlain, a leading apostle of the thrift movement of the 1910s and '20s. "They are, as a general rule, wasteful of personal and natural resources."
The motley movement included conservationists denouncing the clear-cutting of forests and prohibitionists railing against those wasting their paychecks in saloons. But it also embraced those who staunchly believed in private- and public-sector action to promote thrift.
Bankers, union leaders, and schoolteachers joined social reformers, government officials, and charitable organizations such as the YMCA in major public-awareness campaigns, telling Americans how and why they should save. Savings banks were organized in thousands of schools, and more than four million children had school-based savings accounts by 1927. The postal savings system provided a safe, accessible place for small depositors to invest from the '10s through the '60s.
Our current personal debt and savings crisis suggests we might gain much from revisiting some of these ideas. As the U.S. Postal Service flounders, reviving postal savings could repurpose community post offices. Mandatory saving policies could improve Americans' retirement security. In the 2008 presidential campaign, Hillary Clinton called for government-issued "baby bonds" like Britain's to help families save for college. Others have proposed selling "savings tickets" at lottery outlets, with purchasers eligible for prizes. We might even take a page from the Italians, who are being encouraged to buy a stake in their national debt, saving while they help alleviate a fiscal crisis.
Some proposals to promote saving may elicit partisan fire, but the fundamentals of thrift are decidedly nonpartisan. While America needs to foster greater opportunity and economic security, it also needs to encourage wiser use of the resources we have.