If you’re feeling financially strapped this month, you’re not alone. American families are $2 trillion dollars poorer today than they were last year, according to a recent report by the Federal Reserve.
The report, previewed by the Wall Street Journal, showed that household net worth dropped .8 percent in the second quarter of 2008, the third straight quarter of falling wealth.
And most financial analysts believe this is only the beginning. Gary Bigg, an economist at Bank of America, said he expects household net worth will fall another two percent or more this quarter. That could put a crimp in consumer spending, which drives 70 percent of the economy.
"The hit to household balance sheets will certainly have an adverse impact on future consumption spending," Bigg told the Journal.
The informed, objective response to this is: “Well, duh!” It’s no secret that American consumers have spending beyond their means and racking up far too much debt. As Americans’ net worth fell, household debt still increased last quarter at an annual rate of 1.5 percent, according to the Journal. And even with real estate prices in freefall, average family mortgage debt rose last quarter to 55 percent of the home’s value, which means that Americans owned one percent less home equity than they did three months ago.
In the face of all this bad news, here’s some advice that may help:
- Don’t move. Unless you plan to live in a new house for seven years or more, experts say you may lose money to commissions and fees. Consider staying where you are.
- Be careful with that new credit card. The Federal Reserve shows that people between the ages of 18 and 24 are overly cavalier about charging too much credit card debt. With unemployment rising, don’t charge more than you can afford to pay back.
- Don’t panic. Diversify. There will still be a stock market next year, and someone will still be making money on it. Especially if you’re young, experts advise to stay in the market, but make sure that your stock and mutual fund investments are diversified over a broad stretch of markets and investment types.
Credit.com offers straightforward tips and advice to help you make smarter financial decisions. Visit Credit.com to sign up for your FREE Credit Report Card and find out where you stand today!
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