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Declining Interest Rates, Declining Common Sense

This article was written by in Saving. 18 comments.

This is a guest article by Jason Larkins. Jason is the Director of Financial Education at Wise Wealth, LLC in Lee’s Summit, Missouri and the author of the website WorkSaveLive.

For years I had my personal struggles with money: spending more than I made, following the status quo, and living life like I’d die tomorrow. Debt piled more quickly than I could have imagined and after years of digging a hole I eventually found myself buried under $110,000 of debt.

Those struggles — calls from collectors, thoughts of bankruptcy, sleepless nights — eventually would be overcome and my life’s transformation would result in me changing my career, taking a pay cut of $70,000 and pursuing a job which involved becoming a Dave Ramsey-trained counselor and a financial adviser.

What I’ve learned from my own struggles, and from coaching hundreds of people over the last three years, is that my problems (as with most peoples’) stemmed from a lack of knowledge, a lack of common sense about how money should be handled and viewed.

Common sense and money

Whether you were raised by financially savvy parents, or had to learn by way of life’s teachable, often unforgivable moments, the fact that you’re readers of a highly popular finance blog would suggest that you have some common sense when it comes to handling money.

Some of this knowledge may include understanding:

Despite once believing that most people (the status quo) understood these principles, I learned the hard way that one should never make assumptions.

After becoming a financial adviser I began to do research on the average American’s struggle with finances. I wondered why so many people struggled saving for retirement, living within their means, saving for rainy days, and managing their debt levels.

Through a series of events, I found myself researching the savings rate (specifically the percentage of disposable income) and overall consumer debt over the last 40 years. The trends were quite shocking:

The blue line shows the total consumer debt (credit cards, personal loans, and mortgages, excluding student loan debt) in trillions of dollars. The red line shows the average percentage of disposable income that a person saves in a given year.

The major increase in debt from the early 1990s to 2008 is due to the ballooning of the housing bubble. It’s no wonder that so many experts predicted that it would eventually burst. While it looks like people started to pay off debt post 2008 (when the graph starts to go down), it’s most likely that the decline in debt levels was from foreclosures and bankruptcies.

While the consumer debt illustration is terrifying, the savings rate doesn’t make me feel any better. From 1983 on, there was a steady decline year-after-year in the amount that Americans were stashing away. While there was a spike in savings after the 2008 recession, primarily from the fear that swept the nation during that time, the statistics show that we’re trending back down and falling into our poor behavior.

What’s the explanation?

If common sense suggests we’re not supposed to go into debt and we’re supposed to save, why has the exact opposite been the status quo for the last 25 years?

Some will suggest it’s solely because of the increase in housing prices; others believe it’s because wages haven’t outpaced inflation over that time period.

While these realities have added to the cause, I believe a lot has to do with our lifestyle changes over the years:

  • Introduction of technology: cell phones and bills, cable TV, computers, internet, etc.
  • Traveling and vacations: sure, these have been around for ages but it’s almost taboo not to go on a yearly vacation these days.
  • Our desire for the “bigger, better, nicer, newer” as I call it: houses, cars, TVs, clothes, colleges, you name it.

Maybe it’s simpler than that

While my experience tells me that the materialistic shift in our culture over the last 30 years has a lot to do with our recent struggles, there is a fact that I can’t ignore: interest rates.

Some people believe that when rates are low you should take advantage of leveraging money. Borrowing money is cheap now, right? Why not go buy a $300,000 house (a little more than you can afford) when the rates are only 2.85% on a 15-year fixed mortgage? What about that nice car you’ve been looking at? If you sport a good credit score it’s pretty easy for you to get under 2% financing.

Furthermore, a decline in interest rates appears to discourage savings. The trend lines between the savings and interest rates are remarkably similar! Why save money when you can only get 1% in a good CD or money market account? The stock market isn’t yielding anything, so why bother with it?

Declining interest rates, declining common sense

Now more than ever it seems that families across the country are struggling with money. While it could be for a number of reasons, the charts above suggest that as interest rates decline, we forget the basic financial principles that were common back in the mid 1900s.

Gone are the days of living on less than you make, avoiding debt, and saving for retirement and rainy days. It appears that we may only regain our financial wisdom when interest rates start to go back up.

Have you noticed a shift in your financial mindset as interest rates have declined over the years? Have you saved less and leveraged money more than you would have otherwise?

Published or updated October 5, 2012.

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About the author

Jason Larkins is the Director of Financial Education at Wise Wealth, LLC in Lee's Summit, Missouri and the author of the website WorkSaveLive. View all articles by .

{ 18 comments… read them below or add one }

avatar 1 Anonymous

I’d like to see a study that shows what the average consumer spent in the 70’s compared to what they earned. Although I can see how people are more willing to fork up more money for stupid things ($100 cell phone plans), I have a hard time agreeing that the reason why we are saving less is because we’ve ALL become more materialistic. Like you said, the working wages haven’t kept up with inflation AT ALL for the past 20 some years. It used to be that a man could provide for his household, now it takes 2 working adults full time just to have a comfortable enough living and to save for the future. Pensions = gone, 401k = lucky if your employer has one, paid vacations = good luck with that. I’m not saying those things don’t exist, they are just much less frequent than they used to be. Our economy is crap and I can’t possibly blame it on the people. Blame rampant capitalism and outsourcing. I’ve never blamed my problems on others and understand all too well that my financial well-being ultimately depends on me, but that shouldn’t stop citizens of once sane country point out the problems we’re facing due to greed, corruption and lack of planning for the most part.

Jason I love your charts, really puts things in perspective! Sorry if I’m on a rant too much :)

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avatar 2 Anonymous


Thanks for your thoughts…I don’t think anybody really knows but I think the only people you can ask are the people that are 60+ years old. After coaching quite a lot of them over the years, and having a client base that is mostly 50-70 yr olds, I’d say most of them agree that MUCH of our problems these days is derived from a change in mindset and a massive shift in materialism over the last 30 years.

Again, it’s all speculation; the chart above however clearly shows it has something to do with interest rates. The remaining reasons why people struggle are really up in the air though.

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avatar 3 lynn

I believe it’s true – that people are so much into materialism these days. My question would be why? i think it’s easy to assume TV ads have quite a bit to do with it. But, I would go deeper and a bit closer to home. The person who got the newest ‘whatever’ would brag about it. Then they would look down on others. So the ‘others’ had the spouse go off to work so they would feel good about themselves after Mr. and Mrs. Showoff made them feel like a pile of dog doo. This progressed until we have what we see today.

I’ve been around long enough to see how ‘it’ was and how we got here today. It’s really very sad. We (Husband and I) took all the emotional abuse with a half smile. There was something we knew that the mainstream didn’t.

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avatar 4 Anonymous

Both graphs indicate to me that consumerism and materialism are not going to slow down. Period. It is going to take a massive culture shift to really make a true change. I mean, with all the “experts” telling us we need to spend more money to “recover” the economy, how do we expect people to start saving more and making smarter financial choices.

I mean, even hitting rock bottom with this recession has only scared people straight for a few years, and we’re right back to it. People are getting more and more impatient (“I WANT IT NOW”) and our short-term memories seem to be lacking. That’s why I like guys like Dave Ramsey who don’t give two…ummm…cares about our economy and are all about common sense.

Thanks for the rundown, Jason. And yes, visualizing our spending/savings habits is truly frightening.

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avatar 5 Anonymous

I had a lot of discussions with clients in 2009 about people (and our country) needing more than the 2008 crash to change our behaviors. Many of people I met with, and during that time in general, believed that 2008 would forever change our country…but most data clearly shows that wasn’t/isn’t the case. I’m with you on this one Jake: it’s going to take another Great Depression before there is significant, multi-generational shift in our spending and mindset.

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avatar 6 Anonymous

Why blame consumerism and materialism? Blame it all on Sears & Roebuck! Those little numbered disk they used were the genesis of cards that say VISA, MasterCard, AMEX, etc. etc. Before then, a spendthrift was someone who spent everything they had earned and failed to put anything away for the “rainy day” around the corner. Sears & Roebuck took it to a whole new level by introducing unsecured debt – turning spendthriftiness into an art form. At the end of the day (boy I hate that one) it’s the guy in the mirror that deserves the blame. Not Sears, not interest rates, not consumerism, or anything else.

Ok – spendthriftiness is not really a word but I hope it adds something to the sarcasm.

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avatar 7 Anonymous

Steve, I do agree with you completely, but I also don’t think we can overlook reasons why our behaviors change and come about. Basic fundamentals to being financially savvy should apply whether or not we have available credit (or whether or not interest rates are low/high).

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avatar 8 Anonymous

Jason, nice to find you here on Consumerism Commentary!

Cheap money doesn’t make people borrowers or spenders any more than cheap booze makes people drinkers, in my opinion. Here’s what I think are the root causes underlying the trends depicted in your graphs: Runaway acquisitiveness, the glorification of materialism, and a corrosive culture of money.

We can say over-borrowing and overspending are simple matters of human discipline and values, and that people who fall into the trap of chronically spending beyond their means lack moral fiber or have some other flaw. But the incredibly advanced behavioral science on which super-sophisticated modern marketing techniques are founded brings to mind the Borg refrain: “Resistance is futile.”

Sure–ultimately, we’re each responsible for our behavior. But resolving, and following through, on a commitment to live well below one’s means is far, far more challenging than 10, 20, or certainly 50 years ago. Take a look at the details of your monthly spending sometime and ask yourself: How many items that I spent money on did my parents have even the opportunity to spend money on when they were my age? And how many more marketing messages am I exposed to each day than were my parents? 10x? 100x? 1,000x?

Being financially smart and frugal gets tougher all the time. Congratulations to you Jason for recognizing the self-destructive path you were on and changing your ways. It’s not easily done.

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avatar 9 Anonymous

Kurt, I will agree with you on the fact that it’s extremely difficult to life a life-long existence of frugality, but I also don’t agree that interest rates don’t sway people’s decisions. I’ve coached a lot of people over the years and if I had $1 for every time a person told me, “well, the store was offering no interest for 3 years on this new appliance…so I took the financing”, then I’d be a rich man today.

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avatar 10 Anonymous

No question you are correct–just one small example of today’s highly seductive marketing techniques.

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avatar 11 Anonymous

Interested in what you think of the spike in 1992 followed by the decline for almost a decade was about.

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avatar 12 Anonymous

That’s a good question, Jenna and I’m not sure I have an answer. I think there are fluctuations in a number of points throughout the last 30 years (’98, ’02, and ’08 are examples), but I’d have to go back and look at the reports coming out at that time to really help with that answer. ’08’s explanation is fairly easy as we all remember the fear that took place then, but the other spikes in savings rates are interesting. I’m not crazy enough to believe that our savings is solely dependent upon interest rates, but I think they certainly play a part in them.

Also, using 2008 as a perfect example, I think a lot of our behavior stems from the fear (or lack thereof) brought about by what’s happening in the world and particularly here in the U.S.

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avatar 13 Cejay

Loved the article and agree with almost everything you said. I especially loved the charts since I am a visual person and get a thrill out of spreadsheets. I have to say that I too have fallen into the ” I have two years to pay for this ….” and buy something. Only to end up paying interest charges out the nose. I get tired of the couch or whatever and want a new one before the two years are up.

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avatar 14 wylerassociate

For me, there has been a change in my financial mindset. I try to cut expenses, save more money and put more money into my investments. For me, it’s not about having the newest material goods, it’s about being smart with money because financially things are going to get tougher in america not just with the fiscal cliff approaching but also cost of living continues to rise yet wages aren’t.

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avatar 15 Anonymous

Very informative post. I believe that we all should have the mindset and discipline on saving and investing money before spending and living life like a king. Sadly, a lot of people would do the opposite thing.

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avatar 16 qixx

I think another big change in mindset is that of individualism. Many other countries and previously in this country you were defined as part of a group. Usually this group has been family. You’d have multiple generations living in close proximity. The family owned the land. You may have (built by your own hands) a home of your own. You also were more likely to work with/for your family business. You would succeed or fail together. With the changes to needing to be individuals you now “strike out on your own”. Going off to college and moving to be yourself. It’s all about being “on your own” when really all most seem to do is “Strike out”

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avatar 17 Ceecee

I have to admit, it is not motivating to save when you get almost no return on the dollar. The figures may be affected by the fact that when the rate is low for savers, some people will put money into different things, such as gold, collectibles, etc. And, we also are a very impatient culture that wants everything yesterday, that’s for sure.

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avatar 18 lynn

There are so many good comments on this post. I found myself agreeing with half of what a poster said, then not agreeing with the other half. Changes just don’t happen. They are orchastrated (sp?). The entire country has been duped with the availablity of ‘free’ credit. After a generation, it becomes the norm. It took 40 years for the mindset to be established. It will most likely take just as long to change it back. It will take personal strength because we have marketing to deal with.

From what I see, ) In my little world) people who have made frugal changes in their lifestyle for the past 5 years are affected by the tax increases, but not to the point of economic destruction. (Did we all forget the changes were temporary?) This country had the opportunity for personal economic survival, but most chose not to take it. Some tried and failed, some didn’t try at all, and others paid attention. Like the foundation of any society, it came down to individual choice. The thing is, no one sees their personal choices as contributing to the rise or fall of society.

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