"It's strangely ironic that Washington is telling Americans to go out and spend to help save our troubled economy," said Mark Johannessen, CFP, president of the Financial Planning Association (FPA). "It might help the economy, but it won't help Americans dig out of their own spending debt."
Johannessen was reacting to the moves in Congress to finalize an economic stimulus package that will give Americans an individual rebate of several hundred dollars. Last night the Senate Finance Committee passed its own version of a package which differs from a House proposal passed on Tuesday.
"The problem with this rebate approach is that it is anti-savings and anti debt-reduction," said Johannessen. "If people don't spend the money, there's no economic stimulus. But the problem is that the average American household credit card debt is $8,400, the national savings rate is minus 1/2 percent and bankruptcies are on the increase. So spending the rebate may not be in the best interest of many Americans. Not setting up a household budget is how many Americans got into financial trouble in the first place."
"American consumers are nearing the $1 trillion mark in debt, for credit cards, mortgages and other types of loans and that's truly frightening," said Johannessen. "The last time Americans had a negative savings rate for an entire year was in 1933, at a time we called the Great Depression."
Once Congress reaches an agreement on the stimulus package and the checks are in the mail, Johannessen is urging people to carefully consider using the money to pay down their credit card debt or add it to their savings for an emergency fund or retirement.
"The sub-prime mortgage crises has yet to bottom out and many economists think this stimulus package will provide, at best, a short-term fix, so people may really wish they had that money a few months from now," said Johannessen. -- Financial Planning Association
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