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The New Personal Finance Culture in America

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.

What is Debt Counseling and is it important?

Debt counseling is a procedure that explains the many different ways of eliminating personal debt to a consumer.  Debt counseling companies are not only really good in that field, but are also experts in the country’s financial laws.  They give the debtor information about all the important and possible terms and conditions that will pull the person out of debt.  Much of this information can be new and misunderstood by the debtor, so these companies will help shed new light on them. These debt counseling companies also negotiate an agreement with the creditors to assist the debtor with an easier or less painful settlement for the debtor.

Debt begins when a person spends money that they borrow from a creditor.  Debt becomes a problem when a person accumulates this debt and does not pay it back, like when using a credit card and then not paying the monthly credit card bill.  Even when a person fails to pay monthly, the interest will still grow and debt will pile.  It can begin to get overwhelming.  In extreme cases, large amounts of debt will force a person into bankruptcy. In order to avoid bankruptcy, one must absolutely lower their debt.  The best way for someone to do this, is to contact these debt consulting companies.

It is important to understand that debt counseling companies are not free.  They charge varying amounts depending on the company and the amount and type of debt.  Typically, the amount spent is more than worth the amount of money and time the person will eventually save.  Choosing the best debt consulting company is just as relevant as choosing any other type of service; one needs to find the right company to fit their individual issues.

These debt consulting companies help the debtor by guiding them through the most effective ways of handling their personal debt situations.  The larger amounts of debts have the option to choose a debt settlement.  This will many times reduce about half of the amount of your debt and lower its interest rate.  Wow!  For the smaller debts, debt consolidation remains an excellent option.  This will also relieve the debtor from their overwhelming debts.

The Plight of Long Term Unemployed

Being unemployed carries a stigma. But more than that, it hurts an individual’s self-confidence and esteem. The sad thing is, the longer you stay unemployed, the harder it becomes to land a job. Research shows that people who are jobless for six months face a lot of challenges. They lose important contacts, their confidence suffers, and their skills are perceived to have eroded, true or not.

As a result, 46% of those unemployed in the United States today can be classified as “long-term unemployed”. By summer, their ranks can go up to 50%. This year, the economy has already created 982,000 jobs but this was hardly enough to give opportunities to 6.76 unemployed individuals who have been out of work for some time.

Their plight not only hurts them personally, it also drags down the entire economy. Productivity is wasted while government expenses just keep on getting higher. For example, unemployment benefits have now been lengthened to 99 weeks. The government is pressured to keep on extending this to keep people off the streets and out of poverty.

Martinez, a 40 year old salesman based in Washington, DC, revealed that he’s had over 200 interviews over a three year timeframe. Though he projects zeal and expertise, he has been unable to even land a job. According to him, there are days when “you feel motivated…then there are other days, you really lose the faith and think, ‘I’m never going to get another job. Ever.” And he is not alone.

The problem may be worse for individuals who have a high mortgage and high levels of personal debt. All their years of labor can come to naught if they are eventually forced to sell their properties just to live properly. The sad thing is, these individuals also have most to offer to the economy in terms of their skills, educational attainment, and experience.

The recession during last few years is usually compared to the last severe recession in 1981-1982. But there are fundamental differences between the two. This time, the job cuts went deep and it was over a prolonged period. Personal motivation and getting out of your comfort zone is the key for some. As Martinez says though, the road he’s had to trek on is “emotionally draining.” There are no easy solutions so it is important to keep your options open to other opportunities.

Health Costs of Debt

Everyone has experienced one form of financial problem or another. But if there’s one thing that stands out, it is debt. Whether for personal or professional reason, debt is usually inevitable. The problem comes with repaying the loan with interest within a reasonable amount of time. According to a 2009 AP/AOL study, Americans are deeply stressed because of the amount of debt burden they carry. Their stress level has significantly increased from four years ago.

As if financial troubles isn’t enough, stress levels that results from debt is also known to cause health problems such as anxiety, heart problems, ulcer, back pain, headaches, and muscle tension. The health costs due to stress are oven overlooked but it should be given further attention. For example, studies show that people with moderately high to high debt stress-related problems are prone to the following:

  • 7 times likelier to experience severe anxiety
  • 13 times likelier to lose sleep at night
  • 4 times likelier to have digestive problems including ulcer
  • 2 times likelier to have migraines and heart problems
  • Around 7 times as likely to unload their burden to others
  • Around 6 times as likely to have depression

It seems that debt is not something you can just erase from your mind, body, and life. What lessons can be learned here? Well, it seems that while money can increase standards of living, it can also significantly lower it in important areas. Your quality of life suffers especially if you don’t know how to manage your finances properly.

Many say that money doesn’t really lead to happiness. On the other end of it, debt burden can actually cause a lot of unhappiness. Unfortunately, people don’t even realize what its effect is on their health. Surveys conducted in 2009 showed that world affairs is their second biggest concern. Health is placed last in almost all countries surveyed.

If you have a lot of debt, don’t overlook its effect on you. Identify how you cope with debt stress. If it is in a negative way, look for a healthy alternative. For example, you can relieve your frustrations at the gym, make a thorough plan about repayment, or take a part-time job to do something about your situation. Whatever the case, don’t let it get out of hand. It is important to your overall well-being.

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