Americans Are Saving More
By Joe Globensky, RFC®
The household saving rate in the United States has been on an uptrend for years. And while we’ve been staying at home to help prevent the spread of COVID-19, the saving rate in the US reached a level not seen in over twenty-five years. For most of the past twelve months, we were saving at an annualized rate of 7.5% – 8%. But in March that rate increased to over 13%. And the recently released April figure hit a whopping 33%!1 Americans are saving more. And this trend is expected to continue throughout the summer. But why?
Let’s look back to before the credit crisis in 2008 for some perspective. In 2005, the household saving rate hit an all-time low of 2.2%, just as the business cycle was peaking. As the business cycle started to decline, eventually bottoming in December 2008, the personal saving rate had increased, hitting 8% in 2010 – 2012. After a brief spike up to 12%, the saving rate settled in a range of 6% – 8% until this year.
Good Times vs. Bad Times
Saving typically rises during bad times and falls during the good. So, one explanation, especially over the past two months is the uncertainty surrounding COVID-19. With an increasing unemployment rate, uncertainty on when the economy might fully open back up, and an overall fear that our current situation may be more long-term, Americans are saving more.
The Financial System
Another explanation for the higher savings rate is the financial system. Specifically, changes that came about due to the credit crisis in 2008. Many Americans have found it more difficult to access credit due to tightened lending standards on consumer and credit-card loans. Without the pre-crisis easy credit, middle-income households must live within their means.
We’ve written previously about paying yourself first and the importance of an emergency fund. While the recent economic stimulus payments provided by the federal government were designed to help the economy through COVID-19, it appears, at least for now, we are using these to bolster our personal finances. Americans are saving more. And, if your finances can use some improvement, this is exactly what you should be doing.
At Connections Financial Advisors, we work with clients to establish saving and spending plans that make sense for them. As your friendly financial guide and ally, we work as a team to create a truly comfortable and educating experience as we empower you to meet your financial goals. Give us a call today at (217) 605-8130 to get started on your path to financial independence.
1 Source: U.S. Bureau of Economic Analysis
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
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