June 29, 2009
“The Bank of Me”
Often, the first glimmer of new hope emerges from the ruins of failure. And though it's premature to pronounce the end of the global financial crisis that began making news last fall, I believe there is steadily mounting evidence of a fundamental change in the financial behaviors of American families. Change that will, in time, provide the fuel for an economic recovery. Rather than continuing to pile up debt as a means of living beyond their means, or depending on government to solve all of their problems, many people have begun to confront and address their own financial situation, turning away from rampant consumer spending and embracing the time-tested behaviors of cutting costs and saving money.
Some commentators and market watchers say these new fiscally conservative behaviors won't last—that they are just a short-term response to financial uncertainty. But I don't accept their pessimism. At First Command, we are seeing encouraging signs that Americans are embracing what a host of media outlets have described as a new frugality:
- Visa, the credit card company, reported that in the fourth quarter of 2008—for the first time ever—the dollar volume of purchases made with its debit cards exceeded the dollar volume of its credit card transactions.
- In April, the personal savings rate rose to 5.7 percent, its highest level in 14 years.
- And, finally, the April First Command Financial Behaviors Index, our own independent research program, indicated that middle-class Americans believe, by a 3 to 1 majority, that the United States was too wasteful before the recession.
After months of belt tightening and saving, people have come to recognize the importance of fiscal responsibility and are embracing responsible financial behavior as a moral choice. Recent survey results indicate that consumers now believe saving instead of spending feels like the “right thing to do” and a disciplined saving mentality brings them “peace of mind.”
Is there a downside to these more responsible habits? What about the risk that less spending will prevent our consumer-driven economy from fully recovering? After all, in recent years, more than two-thirds of economic activity has been personal consumption. And if there was any point of agreement about the stimulus package earlier this year, it was that the money should be put into the hands of people who would spend it. Some well-intentioned citizens even wondered whether they should go shopping as an act of patriotism!
But I believe this ignores the fact that money saved in modern times rarely gets buried in the backyard or stuffed under the mattress. It goes to institutions that put it to work - banks who lend it, or individual companies seeking to raise capital through equity investments in order to grow their business. Instead of attempting to spend our way out of the recession, in other words, we have an opportunity to simultaneously invest in our own financial futures and the legitimate recovery of our nation's economy.
That's why I believe this is the time for each of our clients to focus on building the “Bank of Me.” This is a bank that is built on saving money and paying down debt. This is a bank that understands the need to grow its assets, but never forgets the difference between investment and speculation. This is a bank that understands the need to manage risk. And, perhaps most importantly in these anxious times, this is a bank that pays dividends in the form of optimism and peace of mind.
As I stated at the outset, despite the modest upturn in the market in recent weeks, I believe it's premature to declare that we're out of the woods. But regardless of how long the recession lingers or how broad the eventual recovery, adopting and maintaining responsible financial behaviors is the right response. And our experience has been that those people who have specific goals and a detailed plan in place for pursuing them are more likely to practice those behaviors. So if you have an up-to-date plan in place, I encourage you to stay the course. But if it's been awhile since your last financial review, I urge you to contact your Advisor. It's never been more important to have your financial house in order - and we're ready to help.
J. Scott Spiker
Chief Executive Officer
First Command Financial Services, Inc.
