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January 07, 2019 at 04:55 PM
U.S. household debt is at an all-time high. Savings rates are dwindling and nearing a low. What’s so awful about this picture? Low personal savings rates often foreshadow recessions, according to a working paper by the International Monetary Fund, posted last August.
Savings rates declined as income, employment and net worth recovered from the financial crisis and Great Recession, the study notes.
The household savings rate decreased to 6% in November 2018 from 6.20% in October. In contrast, from 1959 to 2018, the rate averaged 8.82%, according to Trading Economics.
In October 2018, credit card debt totaled $1.037 trillion, up 10.7% from September, the Federal Reserve reported. Overall consumer debt rose at an annual 7-3/4% rate.
Now comes former Securities and Exchange Commission policymaker Norm Champ with a strong recommendation for financial advisors and consumers. After the global meltdown, the ex-SEC director of investment management helped stabilize the U.S. financial system and set policy changes intended to protect investors.
His advice to FAs now: “Help your clients get in shape so they’re reducing debt and not incurring new debt,” Champ says in an interview with ThinkAdvisor. ”Don’t let them fall into the spending and credit card trap. People are buying all this junk — the smartphone and all its accompaniments are burning a hole in people’s pockets.”
Champ, who wrote “Going Public: My Adventures Inside the SEC and How to Prevent the Next Devastating Crisis” (2017), is finishing up the manuscript for his next book, which is on personal finance and called “Mastering Money,” due out from McGraw-Hill later this year.
He’s on a mission to convince Americans to spend less, get a job, save money and then invest tax-deferred. It’s basic financial literacy and the crux of his new book.
“Yes, we’re a consumer economy; so the government has an incentive to get you to spend. But I’m not looking for [it] to crack down on [spending and savings],” Champ says. “I want people to strengthen themselves and resist [excessive] buying in order to improve their lives.”
