Sep 21, 2010 0 Comment
Recently, there has been a major development that changed the way Americans looked at money management. As the US economy struggled to recovery, ordinary citizens have had to cope with the “new normal”. No longer are credit, loans, and credit cards offers as abundant as they used to be. People are being forced to adapt to the new situation characterized by the following:
Long Term Unemployment
In the previous article, we talked about long term unemployment. Well, this phenomenon is still ever present with the jobless rate hovering at about 10 percent. Figures reveal that there is minimal hiring in the private sector. Most of the recent hiring we saw came from the government. The Obama administration said that the problem is cyclical. But economists expect that while unemployment will drop to 8.7% towards the end of next year and that it won’t be an easy target. Credit card holders need to be aware.
Renting Trumps Buying
Dreams of home ownership are being set aside for now. Instead, people are renting to keep a roof over their heads instead of buying. Between the year 2006 and 2009, the S&P/Case-Shiller Home Price Index showed that property value dropped by over 32 percent. This might encourage some people to buy homes at this point because of lower prices.
For the majority though, the property market would never be the same. And buying real estate is no longer perceived as a good investment. In this regard, renting instead of owning will be the preferred alternative for many.
Saving Against Spending
Americans have high credit card balances. This is stabilizing right now; in fact, credit cards’ balances fell by 6 percent or around $4.5 billion last June. At the same time, average savings rose to 6.4 percent (after-tax income). The rate is thrice higher compared to 2007. Over the short term, saving isn’t good for the economy. But over the long term, more responsible consumers mean better economic fundamentals.
Another trend is higher taxes for the country’s top earners. While this may not affect a significant number of people, some experts say that this can slow down an already-weak economy. Whatever the case, it seems that the “new normal” outlined above are here to stay.