2006 August 11 | Wheatworks Blog: Financial Matters

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Who Saves?

8/11/2006, 8:49 am

Maybe you remember overhearing your parents’ financial talk when you were younger. I would guess the financial focus was probably different for your parents’ generation.

Instead of worrying about their FICO or credit scores all the time, the previous generation talked more about their savings and the interest it earned. Something odd happened. The current financial focus seems to be on borrowing instead of saving. We may all pay for it, too.

Financial Sense Online’s Market Wrap Up with Cris Puplava (08.09.2006) is a good article that provides an interesting (even unexpected) answer to the question, ‘Who saves?’:

‘Renters currently have a 3% savings rate, homeowners with no HELOC have a 0% savings rate, and homeowners with a HELOC have a NEGATIVE 16% savings rate.’

What happened?

One significant reason for the rising consumer debt (and shrinking savings) is that home owners are taking home equity lines of credit (HELOC) and turning their equity into debt. Many seem to think that borrowing against equity in a home is free money. It’s not. It is DEBT that must be repaid.

Combine that with the inflated cost of housing in many regions, and funny money loans (IO and ARM with rising interest rates) used to buy homes and you’ve got large number homeowners stretched too far to save.

So who is saving? Apparently it’s renters … certainly something to consider if you’re currently in the market for a new home or are thinking about taking out a home equity line of credit. Save yourself.

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