Transcripts

Will The Bailout Change Our Behavior?

PAUL KANGAS: One likely byproduct of the bailout plan is a change in how American consumers, all of us, spend and save. Many economists say we are already pulling back on purchases. But will we make long-term changes to our financial behavior? Suzanne Pratt reports.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Most would agree that the U.S. is a nation of spenders, not savers. That's partly because shopping is one of our favorite pastimes, and debt is not a four-letter word. But, we also live longer. And now many of us must pay an increasing share of health coverage, while funding children's education and supporting aging parents. The result is that our personal savings rate has steadily declined for more than two decades. It was about 10 percent during the 1980s, and by some estimates currently hovers near negative. Economist Steve Ricchiuto says Americans have been abysmal savers partly because we view our homes as piggy banks.

STEVEN RICCHIUTO, CHIEF ECONOMIST, MIZUHO SECURITIES USA: Through the entire real estate spike in prices that we've experienced, people felt that their savings were actually going up and therefore they needed to save less.

PRATT: The U.S. savings rate, which is the share of savings as a percentage of total household disposable income, is among the lowest in the industrialized world. 2007 household savings were more than 10 percent for many European nations, 3 percent for Japan and almost non-existent for the U.S. And, as the financial crisis reaches a crescendo in Washington, many economists now predict U.S. consumers will tighten their purse strings.

RICCHIUTO: I think the impact is going to be an increase in savings because since you no longer have that savings coming from your house, in order to maintain a future level of savings for your retirement and for a rainy day, you're going to need to go out and build traditional savings balances which consumers have not done really well.

PRATT: Becoming better savers may not happen by choice, but it's likely to be a new reality for American consumers. The calculation is that banks will want to build up their own capital, so they will be less willing to lend for everything from new homes to new cars. A more fiscally virtuous mindset is also likely to reverberate throughout corporate America. CFO magazine's David Katz, says there's already evidence of altered corporate behavior.

DAVID KATZ, DEPUTY EDITOR, CFO: GE (GE) today, for instance, pulled back on its stock buyback. So that tells you that they're holding on to their cash. And you're going to see a lot of that going on, I think.

PRATT: Experts say making the transition from debtors to savers will not be easy. A shop 'til you drop mentality is ingrained in American culture, and it will take time to change. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.