Despite an average outstanding credit card debt of more than $10,000, the government is urging Americans to spend more to stimulate the economy.
With programs such as “Cash for Clunkers”, the stimulus package passed in February 2009 includes incentives for Americans to continue spending in the hopes that buying more big ticket items – such as automobiles – will fuel the US’s stagnate economy.
But the increased spending comes at a price.
According to the Federal Reserve, American credit card debt alone is $939.6 billion. The average outstanding credit card debt for households that have a credit card was $10,679 at the end of 2008. One year earlier, that average was $10,637.
Even with the government’s urging to spend, however, there is evidence that Americans are returning to saving their disposable income. As more Americans face an uncertain financial future, it seems many are resorting back to savings levels not seen since the mid-1990’s.
In April, research showed that Americans saved an average of 5.7% of their disposable income, the highest figure since February 1995. Compare that with the average at the same time just one year ago, which was 0.0%, and it seems that Americans are holding on to more of their dollars instead of using them to stimulate the economy.
Interestingly, in spite of increases in American savings, the US is still far outpaced by the Chinese personal saving rate, which is estimated between 30-40%.
Reportedly, the Chinese do not rely on credit cards, mortgages, or college and business loans. They pay for items in cash and save anything left over, only spending what is necessary in an effort to grow their personal wealth.
According to an article in China Daily, PBOC vice governor Yi Gang said that Chinese individual bank savings had exceeded 20 trillion yuan ($2.92 trillion). Meanwhile, loans in China, including those for cars and housing, added up to just 3.7 trillion yuan (roughly $541 billion USD) by the end of September 2008.
Compared to the $939.6 billion owed in credit card debt alone in the US, the difference in personal saving approaches is significant.
