Protect Yourself From The Vagaries Of Life

Monday, January 19, 2009, 12:10 AM | 2 Comments

The financial news tell us that consumer spending is actually decreasing which some economists believe is a good thing and will benefit the national economy in the long run. Consumers have been on a shopping spree for two decades, and household savings have suffered. In 2007, the household savings rate was 0.6 percent. Just as an example, if your weekly take-home pay was $100, you saved 60 cents.

Come to think of it, for those who at least do that, it ain’t so bad. Even breaking even ain’t bad. The reason I say it is, in most recent quarters, the savings rate turned negative, indicating that people borrowed more than they saved.

As a result of borrowing, many families have little cushion to protect themselves from the vagaries of life.

Recently, people’s 401(k) accounts have been damaged to the point that they have almost diminished. Even disregarding that, a staggering number of people have not put away enough for retirement.

“Consumer spending needs to slow down,” says Matthew Slaughter, professor of International economics at the Tuck School of Business at Dartmouth.

“It’s a really important long-run structural issue for the financial health of families – that’s yours and mine – and the national economy. More savings means companies can undertake more investment to drive faster economic growth.”

If you start saving, you will be able to invest in U.S. businesses by buying their bonds and stocks. If you don’t save enough compared to the rest of the world, well, U.S. businesses will depend for their money on foreign investments.

As always, if you want to be on a path of financial success:

Moral of the story
Save, save, save. This way you can invest in U.S. businesses and own a small chunk of the U.S. economy; Else foreign entities will own a big chunk of the U.S. economy.

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