The Personal Debt Crisis...

As I was riding the bike at the gym yesterday, a question flashed upon the TV screen in front of me. The question was in regards to whether or not today's 20 and 30 year olds have a sense of entitlement or are really cash poor. This struck a chord with what is a huge issue. For the first time since the Great Depression, the personal savings rate is less than zero. We are by no means in a depression, which makes the issue even scarier. At least a depression would help justify why people have to go to such lengths and absorb so much debt to live. We are a society that puts too much value on material wealth and "appearance of wealth." Here is how we have severly declined in terms of savings rates. Between 1974 and 1984, we were saving at a rate of 10%. By 1994, that had declined to 4.8%. As of January, the rate was - .7%. Unfortunately, for people in the 20's and 30's, these numbers are even worse.

What does this tell you? More value is put on appearance of wealth, than actually working hard to build financial stability. On the way out to get some coffee and breakfast this morning, I saw a sign for a new development of townhomes close by my house that will probably start in the $300-400K range. I don't know this for sure, but that seems to be the trend. My first thought was "Who is buying these things and where are they getting the money?" Granted, I am sure some of the people who are buying these places can afford it. But, on the other hand, I would venture to say that a good number of people are using these new creative financing programs to stretch into places they really can't afford. To back up my theory, Atlanta has the highest percentage of interest only loans in the country. They keep the payments lower. But, what were to happen if these places don't appreciate in value, which I fear they will not. You are going to have a large number of people with no equity and forced to sell at a significant loss. Scary. What funds will be used to move into the next place?

So looking around at all the BMW's, Mercedes, and huge SUV's in an era of extremely high gas prices, it is easy to understand where it is coming from. Debt, Debt, Debt. I have to say that I consider myself to be pretty frugal and modest. The sad part is that in today's era, that can often times be ridiculed as "Cheap." And happy to say "Debt Free."