It Takes Time and Discipline

Barbara Dafoe Whitehead, New York Times Room for Debate (blog), 4/7/2011

Shedding debt is a lot like shedding pounds. It involves slow, steady, disciplined effort before it yields substantial results. It means passing up short-term pleasures for longer-term gains. And getting rid of debt, like getting rid of extra weight, is a do-it-yourself activity for most people. Nonetheless, American's efforts to reduce debt, like the efforts to reduce obesity, need not be exclusively do-it-yourself. In the past, two forms of support have been effective in helping Americans move out of the red and into the black. One: Progressive Era reformers succeeded in shutting down the loan sharking businesses that drove wage-earners into debt. We need similar reforms to curb the practices of payday lenders and other predatory lending businesses that lead today's strapped wage-earners into a debt trap.

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Subject: Thrift

More by: Barbara Dafoe Whitehead

Are some Americans behaving like proverbial grasshoppers, now that the Great Recession is easing? The Harris poll would suggest that the answer is "yes." Roughly a quarter of all Americans have no savings at all, it reports. But does the lack of savings mean that these people are heedless of the future? Not necessarily.

First and most obviously, not everyone is out of the Great Recession. The percentage of Americans who are unemployed or underemployed remains in the mid-teens. Some have had to raid their savings, assuming that they were lucky enough to have such savings, in order to put food on the table. Even after the unemployed have found work, it will take time to replenish those lost savings. Second, many Americans are saving. But their savings behavior is often overlooked because it takes the form of paying down debt.

For example, if you carried $10,000 in consumer debt at an A.P.R. of 21 percent a couple of years ago, and have now paid it off, you have saved $10,000 plus interest. To be sure, this money doesn't show up as savings in your account. But it does make it possible to build a positive savings balance.

Shedding debt is a lot like shedding pounds. It involves slow, steady, disciplined effort before it yields substantial results. It means passing up short-term pleasures for longer-term gains. And getting rid of debt, like getting rid of extra weight, is a do-it-yourself activity for most people. Nonetheless, American's efforts to reduce debt, like the efforts to reduce obesity, need not be exclusively do-it-yourself.

In the past, two forms of support have been effective in helping Americans move out of the red and into the black. One: Progressive Era reformers succeeded in shutting down the loan sharking businesses that drove wage-earners into debt. We need similar reforms to curb the practices of payday lenders and other predatory lending businesses that lead today's strapped wage-earners into a debt trap.

Two: During the early 20th century and during the two World Wars, a combination of government and civil society organizations led a broad-based, grass-roots campaign to teach thrift and foster savings. Today, such efforts are well under way at the grass-roots level, but the national government, which has done more to help Wall Street escape its debt than to encourage Main Street to build its savings, should join the campaign.

This article originally appeared here.

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