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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.

Christmas Spending – Weekly Round-Up

Christmastime is often the season when personal finances are wrecked. Some people just throw commonsense out the winder because, well, it’s Christmas after all. Doing this is not only careless; it can also give you a year-long burden. This doesn’t necessarily mean though that you should stop holiday spending altogether. There are many ways to celebrate Christmas frugally. We have compiled a list of blog posts below that will help you spend the holidays wisely:

The blog My Super Charged Life featured a post titled “Stop Procrastinating and Start Kicking Butt”. For all the procrastinators out there, this post is very motivational. Start moving after you read these tips. If you have large, complicated tasks to do, don’t be intimidated. Instead, break it down into smaller tasks to avoid mental block. Multitasking is another mistake people make. Try to focus on one thing at a time until it’s finished. These tips are very timely especially during the busy holiday season.

Dana @ The Observer wrote an interesting blog post titled “Christmas Spending Woes”. Basically, she talked about how frenzied the season can become with all the shopping, cooking, and catching up that needs to be down. Meanwhile, the bigger economic impact of the holidays is also briefly looked into as she discussed a poll that revealed Americans intends to spend $638 on the average which is the same as last year.

The Shanghai Family Finance blog provided a lot of frugal tips in the post “Control Your Christmas Spending”. The post is quite helpful because it outlined a lot of practical guides. For instance, it said that you need to make a list, know your spending limit, and don’t use your credit card when shopping for gifts and other items. Every tip provided makes good financial sense especially with the tough economic conditions today.

More Taxes in the Pipeline

As if life wasn’t hard enough, legislators now want to charge Americans what else but more taxes. A nationwide tax on all goods and services is being considered to plug the runaway federal deficit. The war in Afghanistan, bank bail-outs, and even the aid to many third-world partners are definitely taking its toll. The question is, would it be right to impose taxes on individuals who have nothing to do with the deficit anyway?

Many members of Congress want to junk the proposal, preferring to cut back on spending or impose higher taxes on the rich. The former might be the best idea. Taxing the rich might sound attractive to some but it might not be good over the long term. It will pull the upper class downward instead of lifting up the poor and the lower middle-class to achieve equity in the economy.

But while it is easy to say that it is just not right to impose additional taxes on struggling Americans who are already dealing with a tough labor market and health care costs, it might be inevitable. Bad decision making has made it necessary. According to Charles McLure who worked for the Reagan administration, “We have to start paying our bills eventually.”

The favored tax route is the value-added tax (VAT). Currently, the US system uses the sales tax wherein only the final product or service is taxed. The VAT system will impose taxes on every step on the production chain. Though this system works well in many other countries, it might erode US competitiveness further because it will drive the prices of everything upwards.

The current system should generate enough revenue to sustain the economy but it doesn’t. Curbing unnecessary expenses might provide is important because it will improve the economy without eroding the country’s competitiveness in the global marketplace. However, with the problems today and with the cost of US health care being sky high, it might no longer be enough.

Among the legislators who invoked the VAT system include Nancy Pelosi, John Podesta, and two former Fed Chairmen: Paul Volcker and Alan Greenspan. Their decision might be right given the current conditions but it wouldn’t have been necessary if legislators and regulators haven’t made such as mess of things in the first place. Why should Americans have to pay?

Middleclass America: Going, Going, Gone

For decades, middleclass America has been the bastion of economic growth and activity. Today, the United States might be witnessing the fall of this segment as their debts shoot through the roof. The financial crisis has definitely hit ordinary Americans the hardest. But before you blame everything on the bankers, it should also be noted that over 100,000 middle-class families filed for bankruptcy every month since 2007.

Statistics shows that one in five Americans today is either unemployed or underemployed. One in eight is in foreclosure or default. And one in nine can’t pay the minimum repayment required on their credit cards. People who are about to retire are also facing incredible challenges because the crisis has just wiped out more than $5 trillion on their wealth (savings and pensions). The list of blogs below highlights other developments that might signal the end of middleclass Americans.

The Rebel News, in the post “US Middle Class Hit Hard by Current Economic Vows”, summarizes key findings that show the vulnerability of ordinary Americans. It also stated that classic lifesavers such as real estate ownership and higher education have lost its powers in the current condition. It has, in fact, become liabilities to the financial system.

Ronni @ Time Goes By wrote a post titled “Imagining Life without a Middle Class”. He gives readers the big picture and the small picture. In the latter, he recounted that most people are spending most of their income on necessities. If this trend goes on, there will not be enough disposable income for any other activity.

Elizabeth Warren @ Huffington Posts compiled research statistics in the post “America without a Middle Class” that demonstrate the fall of the United State’s middle market. Among the key figures that were showed include the comparison between productivity & compensation, income growth during boom times, and the median income of households.

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