Americans and credit

A shopper charges some purchases at a market in Miami. Why do Americans spend so much? Save for a few moments in history when saving and frugality were stressed--during the World Wars, and some initiatives in the 1800s to establish small savings banks--a concerted effort to get Americans to save more hasn't been a hallmark of our financial culture. (Photo by Joe Raedle/Getty Images)

America is known for a lot of things--football, apple pie, ridiculously large sports utility vehicles--but socking away extra cash in a savings account generally isn't near the top of the list.

And while savings rates have ticked up post-recession, American households still save far less than those in a host of other developed countries across the pond, including Italy, Spain, and France.

So what gives? Why do Americans tend to head to the mall instead of saving their hard-earned dollars for a rainy day?

A lot of it has to do with culture and government, believe it or not. Unlike institutions in Europe and other places that encouraged savings back in the day with things like postal savings banks, the U.S. government rarely nurtured saving habits, according to Princeton history professor Sheldon Garon, who recently released his book Beyond Our Means: Why America Spends While the World Saves.

Save for a few moments in history when saving and frugality were stressed--during the World Wars, and some initiatives in the 1800s to establish small savings banks--a concerted effort to get Americans to save more hasn't been a hallmark of our financial culture.

"The rest of the world tends to have very accessible savings institutions and the core European economies also very strictly regulate credit to protect people from becoming overindebted," Garon says, adding that in countries such as Germany and Italy, most borrowers have to pay off their entire credit card balance each month. "You try to explain to them that all you have to do is pay 2 percent minimum of the balance on your credit card and they look at you like you're from another planet."

Here in the United States, the economy virtually lives and dies by the availability of credit. When it's cut off--as consumers and businesses experienced after the Great Recession--the economy grinds to a halt. The severity of the Great Recession has made greasing the cogs of America's credit-based economy more difficult, but we really have no one to blame but ourselves, Garon says.

Instead of promoting saving, over the years public policy and savvy commercial banks have made borrowing money increasingly cheap and easy, especially throughout the 1980s and 1990s when credit card borrowing, home equity lines of credit, and subprime mortgage lending exploded.

The feast before the famine, as it were.

"Americans reached a point in the 1990s and early 2000 when most people said, 'Why would you want to save up for something when you could get the money virtually for free by borrowing,'" Garon says. "That's us."

Americans have pulled back a bit from their borrowing binge after being burned by the implosion of financial markets, but with so much of the economy's recovery dependent on consumer spending, some experts worry that American households could easily fall back into old bad habits: overborrowing and overspending.

As the economic recovery (hopefully) gains more ground this year, experts say boosting personal saving is key to helping American households better weather financial shocks. "School savings banks and postal savings banks seem antiquated now, but we should focus our energy on devising modern-day, higher-tech equivalents," the Urban Institute's Gregory Mills wrote in a recent blog post.

But that could be putting the cart before the horse a bit, given Americans still have more than a trillion dollars of outstanding debt to dig out from under.

"That digging out process may go on for years and years," Garon says. "You've got a lot of people who are seriously in debt, and now they want to get out of debt so they're trying to pay it down, but for lower and middle-income households, it's very difficult to make much progress."

mhandley@usnews.com

Twitter: @mmhandley

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