Individual financial security tied to economy
By WAYNE CURTIS / Guest Columnist
Whether you realize it or not, a strong relationship exists between your personal financial situation and the well-being of the nation’s economy. This point was underscored in recent comments by a top Federal Reserve official.
This is significant because the Federal Reserve is the central bank of the nation. As such, it is responsible for the stability of the U.S. economy, taking action to create maximum employment, stable prices and moderate long-term interest rates.
Elizabeth Duke, one of the seven governors of the Federal Reserve System, pointed out the “direct relationship” between the stability of individual households and the stability of the economy. Duke maintained that the financial health of households is integral to the financial health of the nation as a whole.
Studies have shown that financially stable families face less economic risk and have more economic mobility. They are the foundation of a strong and robust economy.
The reverse also holds true. As the economy expanded in the early years of this century—the period preceding the financial crisis and resulting recession—households borrowed heavily. The amount of debt from mortgages, credit cards and other liabilities grew much faster than income. Between 2001 and 2007, the ratio of debt to income literally skyrocketed.
The economy plummeted during the financial crisis, and individuals decreased spending and increased saving. While many families experienced financial hardship, the aggregate saving of all households grew from zero prior to the recession to about 5 percent of disposable income today.
There is an important lesson for all of us to remember in this. We must be more active in pursuing our financial security.
To do this, we must all strive to become financially literate. By becoming financially literate and developing financial security for our families, we contribute to the security and growth of the national economy.
And when we have a robust economy, everyone benefits.
Wayne Curtis, Ph.D., is on the board of directors of First United Security Bank. He may be contacted at firstname.lastname@example.org.