Avg American spends 5% of their income? Â Then how do you explain this all time high credit/card debt in avg Americans? I think avg. Americans like to spend more than what they make... which ever income that may be...
I think Steve meant 5% spent on clothing, not overall. Â How to explain? Â Revolving credit does seem to be an integral part of our culture. Â Americans are bombarded with advertising and offers of credit every day. Â You can't walk into a store without being asked to sign up for their card. Â You can't turn on the radio without hearing the word "refinance". You can't check your mail without finding half a dozen envelopes emblazoned with "PREAPPROVED. -- O% FINANCING THRU 2005...." Â When everyone around you is doing it, there's a lot of psychological pressure to follow suit. Â You look at a the price-tag on a new BMW 7-series and think "That's a down payment on a house" (or "that's almost a semester of my daughter's college"
). Â Your neighbors look at it and say "Hey, only $750 a month to lease that sleek sonofabitch." Â And when you see it parked in front of their over-leveraged house with its newly-remodeled all-granite kitchen, it looks just like they bought it free and clear. Â You start to feel a little ridiculous and self-conscious about the 10+ year-old japanese car sitting in your own driveway, even though it's paid off and runs like a top. Â Then you walk inside, and you can almost hear
your chipped formica countertops mocking you. Â We've been enjoying ridiculously low interest rates for several years along with a housing bubble, so everyone's been refinancing mortgages and tapping their home equity to buy all kinds of "live-for-today" stuff. Â You can't go to a party without someone bending your ear about what great largesse they've received, either. Â And so it is that I barely know two people (wife's coworker & spouse) who borrowed against their tax-sheltered retirement savings[.] to buy an expensive house at 6.x% and >90% loan-to-value. Then after a couple years' appreciation (at >10%) they refinanced to a gimmick-laden sub-4% variable-rate[.] loan, and I hear they now have a "home equity line of credit" (second mortgage) on top of that. Â They've pulled out every accessible drop of accumulated equity to buy more nice stuff--a huge "luxury SUV", tropical vacations, nice meals, lots of clothes, etc. This couple (the husband at least) is proud to the point of giddy evangelism of how they've gamed the system to discover all these back channels to additional credit and acquire all this great stuff while deferring the costs. Â If they can cover the monthly payment, they don't ask further or consider the bottom line. Â I wonder if they ever look down.