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By Pete D'Arruda Coach Pete D’Arruda is host of The Financial Safari, heard every weekend on WCHL and syndicated nationally on 85 stations around the country. He’s a UNC alum and the President & CEO of Capital Financial Advisory Group, headquartered in Apex, NC.

Debt Vs. Savings

By Pete D'Arruda Posted May 22, 2014 at 6:00 am

These days, America is addicted to credit the way drug addicts are hooked on narcotics. The actual number is hard to nail down, but one source recently stated that the United States owes more than $2.5 trillion in consumer debt. Even if it’s off a billion or two, that’s a lot! How much is a trillion?

  • Our standard nine-digit calculator can’t display it. It’s a one followed by 12 zeros.
  • A trillion one-dollar bills, laid end to end, would reach the sun.
  • A trillion dollars amounts to $3,333 for each of America’s 300 million people.

David Schwartz, a children’s book author, says in his book, How Much Is a Million?, “One million seconds comes out to be about 11½ days. A billion seconds is 32 years. And a trillion seconds is 32,000 years.”

With that in mind, here are a couple of staggering statistics. As of this writing, the United States federal deficit stands at $500 billion. The national debt stands at over $17 trillion. The debt is incurred when the government spends more than it takes in. It is the debt that creates the operating deficit that resets annually. These deficits are paid for by the government selling interest-bearing Treasury securities.

This is where you gulp and swallow hard. If the federal government were ever to default on its promise to pay periodic interest payments or to repay the debt at maturity, the economy would spin into chaos and collapse. It is the interest on the national debt that gives the shivers to those who track this and understand what it means.

That’s why the question is often asked, “Will Medicare and Social Security be around when I retire?” The answer is yes, if you retire before 2024. The answer is maybe if you retire after that. According to the trustees who report on those programs annually, Medicare’s trust fund will run dry by 2024, and Social Security will dry up in 2033. We say maybe those programs will still be here because steps will probably be taken to preserve Medicare and Social Security. But it remains to be seen what form those measures will take, and how the face of Medicare and Social Security will change as a result.

Sparse Savings

According to the Employee Benefit Research Institute, about 60 percent of American workers say their household savings and investments total less than $25,000. According to the book, The Narcissism Epidemic, published in 2009, average credit card debt in the United States exceeds $11,000 — triple what it was in 1990. That’s just credit card debt, and doesn’t include what we owe on our houses, boats, cars, etc.

How much are Americans saving for retirement? Not nearly enough. The average American worker spends 94 percent of disposable income. The EBRI’s report breaks down by age group the retirement savings of America as follows:

  • Under 35: $6,306
  • 35 – 44: $22,460
  • 45 – 54: $43,797
  • 55 – 64: $69,127
  • 65 – 75: $56,212

It’s all a matter of priorities.  I don’t recall ever going out to eat as a kid. Even after our belts were a little looser and we no longer ate government cheese, my father and mother were both too conscious of laying a foundation for our family’s future to waste money on something as frivolous as ordering from a menu. To this day, regardless of my financial situation, my eyes still go to the right side of the menu first, where the prices are listed. I can’t help it. It’s a habit I learned from my frugal parents, who knew the value of a dime, and even more so the value of a dollar. Any surplus was to be used as a foundation for our future, not wasted.

debt

Today, when I see young people eating out in a fancy restaurant, I can’t help but wonder if they have taken care of the necessities of life first. If not, then they are eating on borrowed money that will eventually have to be paid back by someone. I don’t mean to sound like the curmudgeon who resents seeing others experience joy. It just makes me wonder if we are perhaps headed in the wrong direction as a people — a pampered society, not one of industry and thrift. Could it be that retracing our steps back to those taken by an earlier generation might be the best way to move forward to the rich lives we all envision for ourselves?

Coach Pete and his team offer complimentary retirement strategy sessions to Chapelboro readers.  Contact them at 919-657-4201.

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