As we look back at our recent economic troubles, American families stand out as some of the heroes of the crisis. Rather than waiting on the government for help, they have diligently started to bail themselves out of their financial problems. They have turned away from the rampant consumer spending that has been responsible in large part for the recent crisis and embraced the time-tested behaviors of cutting costs and saving money.
Some commentators and market watchers say these new fiscally conservative behaviors won’t last. They are just a short-term response to financial uncertainty. But I don’t accept their pessimism. At First Command, we are seeing encouraging signs that Americans are embracing a new frugality.
The First Command Financial Behaviors Index, our independent research program, indicates by a 3 to 1 majority that middle-class Americans feel the United States was too wasteful before the recession. After months of belt tightening and saving, they have come to recognize the importance of fiscal responsibility and are embracing frugality as a moral choice. Recent survey results indicated that consumers now believe saving instead of spending feels like the “right thing” to do and a disciplined saving mentality brings them “peace of mind.” Americans tell us they are embracing frugality as “a way of life.”
What a dramatic change this new frugality represents for our nation. In recent years, many Americans abandoned the habits of regular savings and investment and replaced them with excessive consumer spending and ominously expanding credit card balances. As we became addicted to the opiate of consumption, we created an artificial economy. These are not problems that can be resolved strictly through government intervention. Our President and Congress aren’t going to be able to bail us out of it, now or indefinitely. The current bailout money and the accelerating deficit are bad enough. That’s before we even consider the looming $38 trillion Medicare funding deficit and the $5 trillion Social Security funding deficit.
So who is going to solve our problems? The same people who always do – we the taxpayers. Instead of spending our way out of the recession, we must build our way out. We will build our recovery on the firm foundation of a financially stable American population. Now is the time for each of us to build the “Bank of Me.”
This is a bank that is built on saving money and paying down debt. This is a bank that pays dividends in consumer optimism and peace of mind. The savings-to-debt ratio is perhaps the most significant contributor to feelings of financial optimism, for as one’s savings-to-debt ratio increases – meaning more savings, less debt – feelings of financial security increase, and feelings of being financially stretched decrease.
Our economy will experience highs and lows, but practicing responsible spending and savings habits will put you in the best position to minimize the impact on your personal finances and keep you on track toward your personal financial goals. If it’s been a while since your last financial review, give us a call. We’re ready to help.
First Command Financial Planning, Inc. (Member SIPC, FINRA).