Eight Reasons Why We Overspend

Feb. 15, 2009— -- There's no doubt that the average American lives beyond his or her means.

We spend $1.33 for every dollar earned, according to the Census Bureau. We carry an average of $8,700 in credit card debt per household, according to the Federal Reserve. And 4.79 percent of our credit cards were delinquent at the end of 2008.

And we might not even be saving despite the fact that the economy is in recession. Even though in December 2008, Americans saved nearly $80 billion more than in the previous month, according to the Commerce Department, we might not be putting away more cash each pay period at all. That $80 billion is likely much smaller when subtracting money saved because of sold assets, such as stocks.

Click here to learn more about the eight reasons we overspend at our partner site, Forbes.com.

While consumers are losing on the market, we're encouraged to spend more as the economy worsens -- we're made to feel obligated to buy when we hear that a dip in consumer spending hurts the overall economy. Sure enough, sales at retailers, discounts on vacation packages and other never-before-seen deals all equate to many of us spending too much money.

Why do we have such a strong urge to overindulge?

For starters, credit is still too easily available to those who can't afford it, according to Andrew Schiff, an investment consultant at Darien, Conn.-based Euro Pacific Capital.

In theory, consumer credit should be a function of savings--hence the old-fashioned savings-and-loan bank. The concept is, essentially, that some people save, allowing others to borrow, while the bank charges the borrowers interest, adding earned interest to the saver's account. Unfortunately, that's rarely how it works these days.

"Americans don't really have any savings," says Schiff. "The negative savings rate, combined with growing consumer credit, has broken the link between savings and credit."

Indeed, relying on credit is one of the main reasons we're in this financial mess. From the subprime mortgage fiasco to the demise of Wall Street, the current recession can only be blamed on irresponsible lending.