Americans have set an unprecedented level. We are officially a league above any other nation and there is no evidence that this trend will change anytime soon. That’s right; we are the kings when it comes to spending money. Our consumption motto has been, “Savings? We don’t need no stinkin’ savings.” But why? Why do we spend so much with no real meaningful thought towards tomorrow?
Princeton professor Sheldon Garon tackled this question in his book, Beyond Our Means: Why America Spends While the World Saves. His interview with NPR can be read here. The gist, however, is that America has institutionalized incentives towards debt while many Western European and Eastern Asian countries have institutionalized incentives towards savings. Many of these forward thinking practices of our worldly neighbors include government subsidies towards small savings accounts. The government actually supports paying increased interest on individual’s savings account. This encourages people to actually save and be more intentional about using their monetary resources.
Let’s look at a couple of ballpark figures as of today (a quick Google search would confirm)…
Type | Interest rate in America | Interest rate in Western Europe |
Simple Savings Account | .05% | 2.5% to 3% |
1 year CD | .5% to 1% | 4% to 4.5% |
Yes we spend statistically significantly more than our worldly neighbors, but we have also created and supported a society that doesn’t encourage the masses to save. Conversely, we actually find it more convenient to keep the masses in debt. What do we do instead of encourage savings? We actually subsidize lending institutions to lend extra credit to the masses to encourage them to spend more than they really have.
Specifically, we subsidize the lending practices of a wide array of mortgage companies by offering the masses home equity loans. With these loans, starting in 1986, we created a system that allowed tax exemptions for home equity loans, just like with original mortgages. This encouraged people to take out second and even third mortgages on their homes so that they could maintain their spending lifestyle. After the 1980’s, it became common place to find government approved and encouraged lending practices of up to 125% of the home’s value in home equity loans for whatever people wanted. If someone couldn’t qualify for a bank loan, there became a multitude of options from the private sector. Again, all of these loans were and are still provided with tax deductible interest, encouraging people to not only remain in debt, but also not fear debt.
Lenders have treated the borrowing consumers as cash cows. The borrowers have been trained to use these ways of “creating” money to help them through whatever budget dilemmas they may have. With this mentality of debt is okay, even good, we find a society with deregulated lending practices that keep the masses in debt and dependence. Credit card companies were also deregulated in the 1980’s and they were given the green light to charge customers whatever they wanted. People found more and more options for credit that they eventually decided (consciously or not) that there was no need to pay off a house or reduce debts when finding credit is so extremely easy.
These greater profit seeking practices have contributed greatly to a society that spends beyond their means. It has also resulted in a fundamental shift of monetary resources from the have-nots to the haves. Our widening income and wealth gap is big enough of a problem. There is no need to facilitate it…yet we do.
The good news is that the solution is easy. Spend less. Spend according to your means, not beyond them. Yes, we should institute some of these societal wide incentives to save (like actual interest for a savings account), but you can choose not to borrow money that you don’t need. We don’t “need” all the latest gadgets and extra toys that we find ourselves buying all too often. If we find ourselves not needing to spend so much money, then we’ll also find ourselves not needing to make so much money. We don’t have to take extra resources from others (people, the environment, etc.) just to support an unnecessary lifestyle.
We won’t have to spend so much time focused on work that we forget about the things that really motivate us in life. We can afford to take a less stressful and more enjoyable job when we aren’t dependent on the high salary to pay for our fast cars and enormous houses (all on the payment plan). We can free ourselves from a seemingly inescapable cycle of debt and dependence if we just live according to our needs and means. I think we would all be happier this way…and the planet would too.
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