Should consumers spend to save the economy?

In the current post-recession economy, taking a hold of our finances is key ... but should we save or spend?

The Obama administration is spearheading policies taking an aim at financial responsibility. However, tax rebates are given out to Americans to shop till they drop.

The ultimate mixed message? Perhaps.

So, what's good for the economy in the long run? In order to be productive in the future, consumers need to save now which will ensure financial stability to spend in the future.

According to an article at Yahoo Finance, "Economists have long fretted about the dangers between what the U.S. spends and what it earns." The U.S. borrows large sums of money from abroad, these debts continue to put downward pressure on the U.S. dollar. This is called an account-deficit. Thanks to our current economy, U.S. policy makers realize the time to end the gap is now.

"If you suffer a heart attack, your doctor's advice will probably include getting lots of regular exercise in the future -- but first you've got to get back on your feet," explains Mark Iwry, a senior adviser to Treasury Secretary Timothy Geithner.

We need to close the gap, before it gets any larger and causes any more damage. Although U.S. policy makers realize the gap needs to be closed, proposals have yet to be implemented. There is a proposal for expanding a tax credit for low income savers, and a retirement account requirement for employers. Saving as a requirement is the only way toward U.S. financial health.

The U.S. job outlook is a negative one, and little income growth certainly does not support consumer spending. This, along with tight credit, is only another reason to save. Yahoo Finance reports, " Although the U.S. account deficit dropped to 2.8 percent of the gross domestic product in the second quarter from a peak of 6.5 percent in late 2005, the latest news reports a growth in deficit.

What are U.S. consumers to do? Save over the next few months in an attempt to get your finances in order... then invest in opportunities that will boost future growth.

Consumer confidence rate falls in September

Just when we thought the economy was in an upswing, a key measure of consumer confidence fell in September after gaining the previous month.

Consumer worries are directed at job security, which seem to be creating enough negative energy to offset any confidence in stocks or home prices. On a good note, home prices were on the rise again in September, benefiting from growth kicking off in July.

The Conference Board, a New York-based business research group, conducted the survey. Their confidence index dropped from 54.5 in August to 53.1 in September.

Economists projections? A much higher rating of 57.

Mark Vitner, senior economist at Wells Fargo says, "Last year, consumers were shell shocked as they worried about what might happen to the economy. Today, shoppers ... don't have the means to step up spending."

According to the Conference Board's survey, consumers continue not to shop for appliances, cars or homes. Consumers are also highly concerned about the job market. It's causing a lot of money-related anxiety. This weak market has caused consumers to be extremely frugal. Shawn Chambers of Chicago has been job searching since August 2008. "Jobs are hard to find, the ones you have are hard to keep. And money's tight," she said. "They're laying people off, and I don't know if I'm next," Chambers says.

For the record, a reading of 100 equals strong growth, and a reading of 90 or above means solid footing for the economy, according to a recent Yahoo article.

Banking fees hit customers hard

The troubled economy has hit the masses. Banks are smacking customers hard with new fees on checking accounts.

Citigroup Inc.'s Citibank is now charging customers $10 for an overdraft protection fee. J.P. Morgan Chase and Co.'s Chase, Bank of America, and Wells Fargo and Co., have upped their ATM transaction fees for non-members to $3. Overdraft fees and bounced-checks will be the most painful to consumers.

Record highs for checking-account fees, ATM surcharges, bounced-check fees and monthly service fees have been hit due to the new implemented changes. Bankrate Inc., a research firm has conducted this study. Mike Moebs, chief executive of Moeb's $ervices Inc., an economic research firm in Chicago, states, "By the end of 2009, you will start to see fairly substantial increases in overdraft fees." This could be as high as $40 per overdraft.

The troubled economy is a major cause, however it is not the only one. Yahoo Finance has alerted us that the Federal Deposit Insurance Corporation has proposed to increase the rates banks pay for deposit insurance, beginning next year. If the proposal goes through, banks will continue raising costs and fees.

So what can you do? Make sure to keep an eye on your spending. Free sites online such as Mint.com, or even pen and paper can save you a lot of money. You can consider moving your account to an online bank, where there will be no fees, and ATM charge reimbursements. Read the fine print, and ask your bank for a copy of the schedule of fees, which banks are required to have.

Savings 101 :: Tips to help cut your expenses

These eight tips taken from Yahoo Finance will help you cut your expenses without drastically changing the life you want to live:

1. Cell phones
How many minutes are you using a month? Check your plan. Does you plan match up with your minutes? Are you wasting money with minutes not used? Or are you having to shell out unreasonable amounts of money because you talk over your plan? The same theory applies to messaging and extra services. Make sure the numbers match up.

2. Food shopping
Shopping in season can save you money. By spending a little more time each week, you can cut your shopping bill by one-third. Look through weekly circulars and coupons for the best deals. Plan out your dinners ahead of time, according to the prices. And last but not least, don't go to the grocery store hungry.

3. Drycleaning
Handwash wool, cashmere, silk, rayon, polyester, and spandex. Use a mesh bag in the washing machine, and wash on cool in the delicate cycle. Lay cashmere and wool flat to dry. Everything else can be put into the dryer on low heat. Using this method will save you many trips to the drycleaners... and a whole lot of money.


4. Coffee
Cut back on going out for coffee. Invest in a coffee maker, and take two minutes the night before to set it for the morning. By brewing your own coffee, you will save a lot of money. This method will let you buy expensive beans in bulk, for much less. Brewing your own coffee will enable you to wake up to the coffee aroma, instead of listening to your balking alarm.

5. Basic Services
Replace old showerheads with low-flow aerating models, and you will already have saved 25 percent on your water bills. Buy a programmable thermostat. This will save you as much as 25 percent on your energy bills by automatically setting the heat for when you will be home. You can buy a basic programmable thermostat for as little as $23.

6. Habits
Change those old money habits! "The Power of Full Engagement" by Jim Loehr and Tony Schwartz explains that adopting new rituals is much easier than being more disciplined. Adopt new rituals such as saving a $5 bill every day, or putting all of your change into a jar at the end of the day, and cash in every few months.

7. Prescriptions
When filling a prescription, always ask for a generic brand. The generic brand can cost up to 40% less, so make sure you shop around. Discount stores such as Walmart and Target offer extreme savings on prescriptions for asthma, arthritis, diabetes, and high cholesterol.


8. Cable TV
If you pay for premium channels, call your phone company and put your service on "vacation mode." Why? You will still get basic services, but you will save temporarily for the extras. Use these savings for a little extra holiday spending money or stash the money in savings.

Air-powered cars create a roaring wind

Looking for a gas alternative? You may consider a car that runs on air.

Zero Pollution Motors has developed a vehicle that runs on air ... and a dash of salad oil or alcohol. The vehicle is not as fast as let's say, a Corvette, but for around $20,000-$40,000 your air-car can motor around all day long.

The expertise necessary has been taken off the shelf. As Yahoo Finance reports, the technology uses compressed air initially, instead of gas or diesel fuel combustion that will then create a burst of air. The air-car can cruise at a top speed of 35 mph for around 60 miles. When an additional motor is added in order to keep the tank filled, the CAV (compressed air vehicle) can then run for nearly 800 miles at interstate speeds.

The CAVs will be available in 2011, and will be built in factories that make up to 8000 vehicles a year. There will be plants in every state, and California will have 17 plants due to the high number of drivers. Florida will follow with 12 plants, Georgia will have four, and Connecticut will have two.

The air-car only has one hurdle to jump. It must pass federal crash tests. Fortunately, Zero Pollution Motors is not worried at all.

Shiva Vencat, president and CEO, says, "The requirements can be modeled [on a computer] before anything is built and adjusted to ensure that the cars will pass."

Click here for the lowdown.