American households are still failing to fully embrace the current economic growth for three reasons - low interest rates on savings, ongoing loss of wealth, primarily caused by the decline in real estate dollars and persistently high credit card balances.

Historically low returns on fixed investments are challenging all Americans, but especially Seniors.  The U.S. Treasury Department reports that the average interest rate paid by the US government was 5.034% as of 12/31/06.  In contrast, as of 12/31/11 the average interest rate paid by the U.S. government was 2.826%, meaning that your government bond savings today pays 1/2 of the income it paid five years ago. 

The second reason Americans are sitting on the economic sidelines is because we are still a long way from recovering the trillions of dollars of household wealth lost during the Great Recession.  According to figures from the Federal Reserve, U.S. household wealth fell by about $16.4 trillion of net worth from its peak in spring 2007, about six months before the start of the recession, to when things hit bottom in the first quarter of 2009.

While the rebound in the stock market combined with an improved savings rate and consumer steps to reduce debt has resulted in net worth gains since 2009, only a little more than half of that lost wealth - $8.7 trillion - is back on household balance sheets.  That leaves American household wealth $7.7 trillion less than it was before the recession.  These figures were explained in greater detail in an article by Chris Isidore posted on CNN Money, June 9th 2011.

America’s Lost Trillions

In addition to the low interest rates and loss of wealth, consumer credit card balances remain high.  According to the Federal Reserve, the peak in credit card balances was $972 billion as of 9/30/08.  As of 11/30/11, the consumer credit card balance was $798 billion.  The actual balance dropped for 26 consecutive months but rose in the three months ending 11/30/11.

These three factors explain why many consumers do not feel empowered to fully participate in the economic recovery and are somewhat reluctant to make large economic purchases.