Zero Savings!
A government report shows that the national savings rate is at zero! The
Commerce Department calculates the savings rate by taking the
difference between after-tax income and all expenditures, including
housing, food and clothing. June was only the 2nd month the rate was at
zero since the monthly figure started being calculated in 1959. The annual
rate for 2004 was 1.8%; the last time the annual rate was lower was 1934.
Probably, strong auto sales in June played a big part in the latest
statistics on the savings rate. The government counts the entire price
of the autos purchased during the month, even though most consumers
pay for vehicles over time. However, we must recall that in May, before
the current "employee pricing" offer from automakers, the savings rate
was only 0.4%, or 40 cents for every $100 of take-home pay. It is also
worthwhile reminding us that as recently as 1994, the savings rate was
nearly 5%. About 25 years back double-digit savings rates were the usual
practice of baby boom generation.
According to a separate report from the Federal Reserve, the average
U.S. household has a net worth of greater than $400,000. Household real
estate assets have risen by just over two-thirds since 1999, and the run
up has enabled consumers to spend more money than they are bringing
home in their paychecks. Consumers are using home equity loans and
refinancings to pull out cash and support a higher level of spending.
Also, one other factor driving down the savings rate is rising energy costs.
According to an estimate, the rate would still be in the neighborhood of 2
to 2.5% seen 2 years ago, before energy prices started moving higher.
It is time to think carefully before you start draining money out of your
home. The mortgage rates will surely increase -- it's just a matter of time.
Don't spend more than you really can if you wish to avoid difficult time
under high-interest rate situation.
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