Saving During the Credit Crisis

Posted by: Michael S. | Mar 27,2008


I can’t say how many blog entries I’ve read on the Experts on Credit blog that all point to the same thing: you’ve gotta save.  We all write towards different demographics, but if yours a college grad, married with a kid, or heading towards retirement, you have to work on your debt.  While even a thousand dollar debt might not look bad, you could eventually pay twice that in interest if you leave the debt to linger.  

So the basic vibe regarding the economy is that people are not spending money – on anything.  Frivolous purchases are out, as are major purchases like home ownership. While on the one hand, I’d like to push people towards buying a home – because prices and rates are good right now and the mortgage industry needs it – part of me thinks this is a good development. Yes, the American economy needs people to spend money.  But really, people were spending unwisely, and if it takes a little fear of economic downturn to be more responsible, then so be it.  

Perhaps when the economy heads in the other direction, people will be reminded of their frugality during these tougher economic times.  Then again, knowing how Americans spend and save, a lot of people will go hog wild with their savings and blow it all at once.  In general, use this time to assess your current debt situation and how to best manage your finances.  Budget, pay off high-interest debt first, save some for emergencies, and invest wisely.

The trouble is that a widespread slowdown in spending can prolong the problems we’re currently facing.  Right now, auto sales and home sales are down significantly, as is spending at major retailers such as Target, JC Penney and Best Buy.  It’s important for consumers to not become financial hermits, but to strike a balance between being fiscally responsible while not eschewing spending altogether.   

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