Sunday, February 15, 2009

Wonder why it seems we have less disposable money?

Surely bankruptcies rates are high because of all that stuff we buy, right? Now that we have two income families, Americans have more money to buy stuff than ever, even adjusted for inflation, don't they?

Things have gotten much worse since this interview was made.

Frontline interview conducted with Elizabeth Warren, professor of law at Harvard University and bankruptcy expert, on Sept. 20, 2004:

Isn't it really simplistic to say that credit cards, ... if you will, ... [are] pushing the bankruptcy rate higher and higher? Isn't it America's lifestyle? Isn't it in the ... consumer culture that we want all these things?

I wish it were. I went into this research with my finger out and sharpened, ready to say to American families, "Bankruptcies are up because you're spending too much on stuff." ... The problem is, when you look at the data, you really actually look at the numbers ... what were a mom, dad and two kids in the early 1970s spending on clothing compared with what a mom, dad and two kids are spending on clothing today? You know what I found? Adjusted for inflation, today's family is spending 22 percent less than the family a generation ago.

How about food, eating out? Surely families are spending much more today than they did a generation ago. No. What the numbers actually show is that they're spending about 21 percent less than they spent a generation ago. Appliances -- today they're buying microwave ovens and espresso machines. ... Turns out, families today are spending 44 percent less on appliances than they spent a generation ago. We could go through the whole list -- furniture, ... floor coverings, tobacco. ... We spend a little more on alcohol, but all those other things are down, down, down. ...

In other words, families aren't going broke because of ordinary consumption. It's just not what the numbers show. Where are families going broke? The mortgage, that's up about 70 times faster than a man's wages over the last 30 years. Health insurance, also up about 70 times faster. A second car, because now Mom and Dad are both in the workforce, and they're more likely to live in a more distant suburb. Child care ... and after-school care, college tuitions. ... Today's family has put two people into the workforce, but for the medium-earning family, they've got 75 percent more money than their parents had a generation ago. But by the time they make those four basic purchases -- the mortgage, their health insurance, their cars and their child care -- they have less money to spend on everything else than their parents had a generation ago. American families are under the gun financially, but they're under the gun because of big purchases, mortgages, health insurance ... two cars, child care. ... They're not under the gun because they spent too much when they went to the mall. Families are just trying to make it in the heart of the middle class, and expenses have just shot out of the reach of the medium-earning family.

Labels: , ,


Post a Comment

<< Home

Web Site Counters
Staples Coupons