The Bureau of Economic Analysis is reporting that the personal savings rate reached a 15 year high of 6.9% in May! This is the highest it’s been since December 1993.
In recent years the savings rate has actually gone below zero %. This was back when credit was running more freely and Americans were spending more than they had. (Read: maxing our credit cards and using home equity loans as a source to spend).
Some would argue that this actually hurts the economy. See, when people save it means they aren’t spending. When we don’t spend as much companies don’t get as much income and the economy doesn’t grow.
I think it’s a good thing the savings rate has increased. Look, we’ve been spending more than we have as a country for too long. Look what happens to the economy when the debts catch up! Even though saving more can extend the recession, when we come out of the recession we will be better off. Once Americans have a chance to put away decent savings then they can to back to spending again but hopefully they will still have their savings should they need it.
To me the fact that the personal savings rate has gone up is a positive sign. People are starting to get the fact that you can’t spend everything you make and hope to always be ok. One thing this recession has taught us is that you need funds available when jobs become tight. We can’t even count on credit since many companies are closing accounts or cutting credit limits in this economic climate. You need to have an emergency fund.
We’ll get out of this recession. It may take some time but we will. Hopefully the recent rise in the personal savings rate will remain once we emerge from the recession and people will remember what got us into the recession.
What do you think of the current savings rate?
photo credit: kevindooley
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As equity extraction rates from real estate and investment holdings increased in the 90s, savings declined.
Equities gave people a false sense of financial safety and savings.
Now that equities have come tumbling down you will most likely see people revert back to the 8% savings rate.
Time will tell, but it seems a lower savings rate reflects the bubbles in real estate and the market.
That would prove to be an interesting economic indicator!
I know my savings rate has gone up!
Bible Money Matters´s last blog ..Spending Less Than You Earn. Sound Advice At Any Income
Now if only the rate earned on the savings went up too!
Our savings rate went down
But that’s because we put in a yard this year. Happily, it’s paid for now, and our savings rate can return to normal.
Hopefully, though, this recession has taught us all the importance of saving. It will be interesting to see if we, as a society, continue to save when the recession ends.
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It will interesting indeed. The cynic in me says once the recession ends the savings rate will drop again. Hope that’s wrong.
I find it a little odd that savings are so high while credit card defaults and such remain high. Not really a good sign, I think. I wonder if people are doing strange prioritizing or if the ones doing the saving are people who are otherwise okay.
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Abigail –
The “saving” number includes paying down debt. So, despite the higher number most American’s still probably don’t have a savings to speak of.
MLR
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Saving money is a good thing. I don’t know why the economy is based on spending more so than the networth of every individual.
start saving people instead of drowning in credit card debt!
“Some would argue that such a high savings rate actually hurts the economy.” – Only very short sighted people would argue this. In the 1970s to the mid-80s the savings rate was around 10%. A prolonged economic boom started in the early 80s which ended a good year ago. The savings rate had dropped close to zero by 2000. Economic theory also says that a high savings rate allows for high investment which in turn will lead to high economic growth. In the short run, however, an increasing savings rate hurts consumption and the economy. But I think it is time that we stop thinking about immediate gratification and focus on long-term benefits again.
It will really be interesting to see how well retailers like Bed Bath and Beyond and Best Buy will perform in the next 2 years. The more we save, the less they make.
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I think some retailers will do fine. Best Buy just lost a competitor in Circuit City so the economy helps them somewhat. Others will hurt but it will pick up again as the economy recovers.
I agree with you with regards to the recovery on recession. The positive attitude towards problems like this that affects our lifestyle will really help a lot. I think a lot of people are aware of their savings rate and it will definitely increase in this kind of time.