As if economic indicators were not already bad enough, there is news that Americans have increased spending and credit card debt. In addition, they are tapping into their savings and retirement accounts as well as money set aside for education.
These trends are troubling many financial experts as they delve into the causes.
Charles Evans, president of the Chicago Federal Reserve, commented that Americans have recently been spending money in a manner that does not align with income growth figures. He believes increased credit card use is creating the situation.
This would be a reasonable approach, he said, if consumers believed that employment and income increases were forthcoming. However, this is not the case, creating a puzzling situation.
In recent years, the personal savings rate steadily increased. It has now dropped back to the lowest figure since the start of the recession. The U.S. Commerce Department reported a 5.1 percent personal savings rate in November 2010.
By November 2011, this figure was just 3.5 percent. Analysts fear that many Americans are meeting daily expenses by borrowing against the future.
Wells Fargo Securities Managing Director and Senior Economist Mark Vitner stated that the savings rate is currently declining “out of necessity.” Energy and food prices have increased and people do not have as much cash remaining to spend on desired items.
Aon Hewitt surveyed 150,000 401(k) holders and found that nearly one-third of them have a loan outstanding on their account.
During 2011, there was a 20 percent increase in retirement account loans and this figure was 60 percent for low earners. Once they drain their savings and retirement accounts, consumers may turn to payday loans and other cash advances to get by.
More than one-quarter do not anticipate having enough savings for a comfortable retirement, according to an Employee Benefit Research Institute survey.
