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RENEE MONTAGNE, host:

As the economy slows down, we owe it to ourselves to consider all the debt we piled on ourselves. For many Americans, an inflated mortgage is just a start. There's also the car loan, plenty of credit cards...

STEVE INSKEEP, host:

And much more. We're going to talk about debt all week because that pattern is a change from what many of our parents did. Consider this number. Back in the early 1980s Americans saved more than 11 percent of their income. Last year, on average, Americans saved one-half of one percent.

MONTAGNE: Steve, that's no savings.

INSKEEP: Well, basically, although perhaps some people are wondering how they managed to save that half percent. Anyway, we're going to begin this series with an economist - Financial Times columnist Tim Harford, who's been studying that debt.

Why has there been such a big change in the personal savings rate in the last few decades?

Mr. TIM HARFORD (Financial Times): I think the biggest thing is that lenders have been willing to lend. If you go back 20, 30, 40 years, a lot of people were denied credit. They were denied credit because of their income, they were denied credit because of their gender, because of their race. So people have suddenly been given the ability to borrow more - credit cards, mortgages, unsecured loans - and they've taken advantage of that.

INSKEEP: Wait a minute. You've already contradicted, I think, some of the conventional wisdom on this, because I think it's assumed that people were in the past more virtuous or more focused on savings. You're saying it's not about the borrowers, it's about the lenders.

Mr. HARFORD: Well, that seems to be what's happened. If you look at the increased financial sophistication of any developed country, the more sophisticated the financial system, the better it has been at producing loans and packaging them and selling them to people. And it seems to me that we've always been willing to borrow, we've always been keen to borrow if the lenders have been willing to lend to us.

INSKEEP: So basically what's happened is you've got a lending industry that's got a product, loans, that it is figuring out more and more creative ways to sell to us. In your view that's what's happening here.

Mr. HARFORD: I think so, yes.

INSKEEP: Is it a bad thing?

Mr. HARFORD: It's been a good thing until recently. The availability of credit to people to buy their own homes, the availability of credit to people to smooth consumption, you know, broadly that's a good thing. But clearly the last couple of years it's just gone crazy. And loans have been made that people couldn't possibly repay.

INSKEEP: Well, now, let me figure this out. You're saying that it has been, at least until recently, a very good thing that people had so many more options, that they could smooth out their incomes, they have all kinds of opportunities, because credit is available that should be a good thing. But is there something about the availability of credit itself that causes people to go off the rails and make bad decisions?

Mr. HARFORD: Well, one of the things that worries me is evidence from what you might call behavioral economics or what you might call economic psychology about the way we sometimes make short-term decisions. And we seem to be hardwired sometimes to just make rash decisions in the short term.

For example, economists offered their experimental subjects a choice of a snack. Do you want fruit or do you want chocolate? And depending on when they were offered the snack - do you want to eat it now or do you want it in a week's time - people would make different decisions. They would choose chocolate now, but if you said, well, what do you eat in a week's time, people would think forward, then think, well, fruit is healthier, I'll pick fruit.

INSKEEP: Oh, no way. As long as they don't have to eat it now?

(Soundbite of laughter)

Mr. HARFORD: Because what would happen is a week down the track, the economists who did the experiment would show up with the fruit. And you know, here's the fruit you asked for. By the way, would you like to swap for a Hershey bar? And then suddenly would go, yeah, I must have been crazy a week ago when I thought I wanted fruit. Give me the chocolate now.

INSKEEP: So is the analogy there that if you have to save and wait several years before you can buy a house, you might buy a house you can afford, but if you can buy any house today, you might buy something that's completely irresponsible and beyond your means or just risky; you don't know if you're going to be able to pay it off?

Mr. HARFORD: Or you might decide to buy some clothes, a car, a hi-fi now. Because right now that seems like, you know, the thing you really want to do. But if you were to be asked in a week's time, if you were to see that designer handbag, if you saw the perfect pair of shoes, would you buy it? You'd go no, no, no. you know, I can't afford to spend money like that on shoes. But then when you actually get down the track and you're right there, you have the credit card, so you can buy it, you know, instantly with no consequences. The consequences come further down the track.

So one of the things that economists are trying to think about now is how do we help people to reflect that longer term perspective in the decisions they make today. One thing that they're doing, for example, economists have designed a pension-saving system called Save More Tomorrow.

What they do is they've teamed up with companies and the companies offer their employees the usual choice, you know, would you like to contribute some of your salary to your pension plan? But it's not phrased in the usual way. Rather than saying do you want to do that now, they say, you know, nine months down the track, a year down the track, you're going to get a pay rise; at that point do you want us to send you a pay rise direct into your pension account?

When people are given that choice, that's suddenly a lot more attractive. People are very keen.

INSKEEP: So everybody's who's always meaning to save next year is given the opportunity to actually commit to save next year?

Mr. HARFORD: Absolutely. It's almost like saying to yourself, you know, I'll quit smoking next year, only in this particular case the company's actually able to enforce that decision. And it's been shown to be very, very effective in increasing savings rates.

INSKEEP: We're talking with Financial Times columnist Tim Harford about debt - maybe yours, maybe mine. And I'd like to know, Mr. Harford, if the national savings rate went back up again from point four percent up to 10, 11, 12 percent, would we be better off?

Mr. HARFORD: I think it depends how high it goes. The basic tradeoff is this. If you want to be richer in the future, the obvious way to do that is to save rather than spend now. But generally we get richer in the future because we get smarter, because technology improves and so on. So how much do you want to sacrifice your income now for income later when you're, you know, when you're richer?

I think about my own experience. Fifteen years ago I was a student. And I was one of those rare students - I was studying economics, right, so, you know, we're all kind of perverse and a bit different - who actually saved money. You know, I got myself a job. I was really careful about the money I spent. Now, did I make the right decision? I made completely the wrong decision. That was crazy. I was saving just a few hundred dollars.

As a student, there were so many things for just ten bucks or for twenty bucks. You'd have such a wonderful evening and yet you're scrimping and saving, you're working and working and working to try to earn this money. And you know, now I wouldn't even notice. The idea that the former me sent a few hundred dollars forward in time to me now, you know, if only I could send it back.

(Soundbite of laughter)

Mr. HARFORD: Only I could send it back I would. And actually that's what debt is. Debt is your future self sending you money back in time. So the question is, are you and your future self both happy with the deal? And clearly you can borrow too much, but you can also save too much. We just got to get the balance right, and that's not easy because the future is uncertain.

INSKEEP: Tim Harford of the Financial Times. Got 20 bucks?

Mr. HARFORD: Oh, sure. For a moderate rate of interest, I'll happily lend it to you.

INSKEEP: Great, thanks. We'll work out the terms off the air. Good talking with you.

Mr. HARFORD: Thanks, Steve.

(Soundbite of music)

INSKEEP: Mr. Harford is a Financial Times columnist and author of "The Logic of Life."

These conversations continue tomorrow, and we're going to meet a consumer who is trying to dig herself out of credit card debt. And you can track America's savings rate and borrowing binge at NPR.org.

This is NPR News.

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