GUESS WHAT WE'RE REALLY SPENDING MONEY ON?
GUESS WHY FAMILIES ARE USING WAY TOO MUCH CREDIT?
The mall? Plasma TV?
Nope. Consumer goods are actually DOWN in price since 1970 (in real dollars). What is driving us into endless debt?
Read on.
Or Watch this:
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=385x116794"Distinguished law scholar Elizabeth Warren teaches contract law, bankruptcy, and commercial law at Harvard Law School. She is an outspoken critic of America's credit economy, which she has linked to the continuing rise in bankruptcy among the middle-class."
Here are some of Warren’s figures:
*ALL DOLLARS ARE ADJUSTED FOR INFLATION
*ALL INFO ON CONSUMER SPENDING COMES FROM THE US COMMERCE DEPARTMENT
*BASED ON FAMILIES WITH ONE DAD, ONE MOM, and TWO KIDS OF AVERAGE INCOME
A. Family Income
1970
Family Income: only one income 32K year
2004
Income, 73K year, rise entirely due to mothers in the workforce. Fully employed males make $800 less per year than their dads did in real dollars in 1970.
B. Family Savings
1970
Savings: roughly 11% of income
2004
No Savings at all. Actually negative savings in past 5 years, meaning that debt outweighs savings.
C. Family Purchases/Consumer Goods
1970
Consumer goods actually cost MORE in real dollars
2004
Clothing prices: DOWN 30% from 1970
Food (including eating out): DOWN 18% from 1970
Appliances: DOWN 52% from 1970
Also DOWN in price: baby food, cars , cigarettes, dry cleaning.
Slightly up: electronics (by $300/year), dog food, and alcohol
So why, with more income and a reduction in prices on most consumer goods, is the average American family in debt instead of saving more income?
D. Mortgage:
1970
Many entry level homes were NEW HOMES, just built.
Averaged 5.8 rooms
2004
MORTGAGE: UP 76% in real dollars. (This is due to the cost of housing. The mortgage rates are actually lower than in 1970)
Most entry level homes are NOT new homes. Most 1st time home buyers are living in homes that are 25 years old or more (The Mc Mansions are actually 3rd or 4th time home purchases and only represent the top 20% of income earners)
Average 6.1 rooms. That means 1st time buyers are getting an additional 2nd bathroom or 3rd bedroom but not both.
E. Health insurance:
1970
Employer sponsored
2004
Health insurance, employer sponsored: UP 74% from 1970
F. Car Expenses:
1970
1-Car family
2004
Car Expenses: 2-car family , Expenses UP 56%
G. Child Care:
1970: non existent expense
2004
Child Care: Up. (Warren says 100% for the sake of argument, but points out that the rate is infinite/non-existent mathematically)
H. Taxes:
1970
(only taxed on husband's income)
2004
Taxes, on joint income, UP 25%
I. TOTAL FIXED EXPENSES
1970
Fixed expenses (Mortgage, Car, Health Insurance, Taxes) came to about 1/2 the family income (1 working male)
2004
Fixed expenses, plus child care, come to 3/4 of the family income (2 working parents, more real income than in 1970, dad making $800 less per year in real dollars.)
Warren’s points:
*The biggest expenses are the most inflexible and have gone up at very high rates in real dollars over 34 years.
*The smaller expenses, which are the most flexible, have actually gone down.
*The fixed expenses lead to the lack of cash flow for spending or saving; there are fewer total dollars left after fixed expenses. This leads to borrowing on credit, and, eventually bankruptcy.