December 15, 2004

Today’s Sermon: Consumption vs. Wealth Building

Why does Utah have such high bankruptcy and mortgage loan default rates?

Certainly, it’s a combination of things, but much of it is simply that we have bought into a culture, nationally and particularly in Utah, that values consumption rather than wealth building and financial independence.

The Wall Street Journal published a fascinating story Dec. 10 comparing savings rates in Europe and the United States . For all of their faults and economic problems, Europeans focus on building wealth far more than do Americans. Europeans save more than 10% of disposable income, while we save less than 1%. In Europe it’s okay to live in a small house, drive an older car or use public transportation. “People have an urge to spend nothing,” said the CEO of a German corporation. A 27-year-old German professional woman invests 12% of her income, doesn’t like to shop, doesn’t much use her credit card, and says, “Debt is disreputable. I was brought up to spend only what I have.” The average American spends $5,500 a year using credit cards. The equivalent figure in Germany is $64, and in France , $30.

If you’re a typical Utah middle-class family and your income goes up by $500 a month, what do you do with the extra cash? Hardly anyone will invest it (use it to build wealth). Instead, most will buy a new car, move up to a bigger house. At most, responsible families might use the money to pay off credit card debt. But once credit cards are paid, they’ll go into consumption mode again.

Pretty much every dime of our disposable income goes into consumption, not wealth building. And you can’t have it both ways. For most families, you either consume or you build wealth. Most don’t have enough money for both. While we think 2nd mortgages, boats, 4-wheelers, snowmobiles, season Jazz tickets, cruises and vacations bring us the happiness we desire, those expenditures postpone wealth building and financial independence.

We love to consume, consume, consume. We consume right up to, and beyond, our resources. Most families are continually on the edge. And when they lose a job or have a big health bill, they fall off the cliff. If you’re a middle-class family and you value consumption over wealth-building, you’ll never be very financially secure. Even high-income families won’t build much real wealth if consumption rules their lives.