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America's money tree
Debt: Present and Future, Private and Public, by Andrew Kline

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Date published: 1/20/2013


--Americans struggle mightily with spending more than we earn and not saving for a rainy day. Peter Tufano of the Harvard Business School discovered in a recent survey that more than half of Americans could not raise $2,000, within 30 days, from all available resources, including family and friends. Two thousand dollars, he reasoned, was a good figure to represent the usual "life happens" emergencies. Just the problem of poor and unfortunate folk? He found that only 25 percent of Americans making between $100,000 and $150,000 could come up with $2,000 in the same timeframe! This hits home because it shows how even the financially literate might feel like they live paycheck to paycheck.

Consider the gloomy statistics about preparedness for retirement. Our individually funded defined contribution plans will only deliver a familiar standard of living if each of us saves roughly 15 percent of our salary from when we start working in our 20s until when we hope to retire in our 60s. This requires discipline. The miracle of compound interest will not work if we borrow against these funds for college education or spend them for medical and employment emergencies.

As it stands, 40 percent of us will never save for retirement and the average amount saved in a retirement fund is $35,000. Twenty percent have no savings at all. And 46 percent of Americans die with virtually no financial assets. Currently, average annual household income is $43,000. The average total bank account balance is $3,800. The statistic that matters most? The average household debt now stands at $118,000.

Shall we look for other people to blame for this? There is a public side to debt, of course. Our national debt is registered not in billions but in trillions. If we can hardly tread water now, how will our children make those interest payments? Passions are high. Pledges have been made never to raise taxes or to keep entitlements at all cost. Reputable economists cannot show you that the economy grows or shrinks according to the tax rate; it's just not true. And yes, something must be done about runaway health care costs. None of us are going to get away without making sacrifices.

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Andrew Kline is the director of the John Templeton Center for Thrift and Generosity at the Institute for American Values.