September 29 2009|08.15 AM UTC

Jonathan Rivers

The Collapse of Personal Savings Rate in America

Category: SavingsTags: , , , , , ,

This year’s dramatic shift in the economy found many Americans without a ‘rainy day’ fund.  Millions of Americans lost their jobs and saw their 401(k) wiped out. It is unsurprising then to see that the trend of personal savings rate has been on a fast-pace decline since the mid 1980′s, reaching decade-low levels in recent years. The following graphic shows the trend of personal savings rate per month from 1959 to 2009, along with an alarmingly opposing trend of rising consumer debt.

(click image to enlarge)

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Personal savings rate is a key measurement of the amount of resources American household have available to contribute to the national saving.  A low personal saving rate limits how much the nation can invest and so ultimately limits future economic growth.

As you look at the graph above, consider this: personal savings rate also correlates with Americans’ ability to sustain their rate of spending.  Because personal spending represents about two-thirds of the U.S. economy, a low personal savings rate raises questions about whether Americans have adequate resources to withstand a financial emergency such as unemployment in the event of an economic downturn.

Despite the downward trend of personal savings rate in America, a change in money mindset has emerged from this recession.  Personal savings rate has climbed to its highest level in the past 15 years while U.S. consumer outstanding credit plunged in recent months.  Having directly seen the impact of facing a recession without a cushion, many Americans are becoming thriftier and savvier in managing their money.

Why was there a decline in personal saving?  A few things may explain the trend: 1) Increasing availability and the abundance of consumer credit. 2) General positive outlook and expectation on continued economic growth.

Why do you think Americans started saving less money in recent decades?  Please feel free to share your thoughts below.

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{ 20 comments… read them below or add one }

He Who Pawns September 29, 2009 at 10:26 am

I would like to see what the Fed was setting interest rates at along this graph. Then you will really understand the cause of our current mess.


Paul Puckett September 29, 2009 at 10:31 am

Billshrink Guy,

Well written, timely article. Does the data from the US Department of Commerce Bureau of Economic Analysis include retirement plan contributions? I seem to recall that some of their statistics are still calculated using methods established prior to the creation of 401k’s and IRA’s.

Still, good news that the savings rate has improved, although, it’s a shame that it took an economic collapse to motivate saving.

Best regards,

Author – Investiphobia: You Can Invest Without Fear


Lonnie September 29, 2009 at 11:14 am

This has good points, but you can’t compare percents and totals in the same graph.
Also, the consumer deb, as a total number, is pretty much useless unless you index it to inflation. It’s like putting the min wage rate on a graph and showing how much it has increased over the years. Unless you index for inflation, then you don’t know the “real” value of the number from 1960 compared to today.



Just My Opinion September 29, 2009 at 11:33 am

Personal savings rate also reflects how much excess money people have above what they need to live–in other words, the prosperity of the average American.

When my parents bought their first house in 1963, they were 36 and 37 years old. Their house payment was $110 per month, and my father earned $600 per month. His take home pay was most of that, since at $7,200 per year he wasn’t paying much taxes. Of course they could afford to save money. They could live on maybe $300-$400 per month and save the rest.

In 2009, it is impossible to find an average, unskilled worker without a college degree who can buy a 2-bedroom house in a metropolitan area and have a house payment that is less than 20% of his take-home pay.

Face it: the gap between the wealthy and the poor has increased incredibly and the distribution of wealth is going the way that it did in pre-revolutionary France at the time of Louis XVI.

People aren’t saving as much because they need more and more of their income just to live. The average American isn’t as wealthy today as he was in 1950.


william August 29, 2010 at 12:06 pm

I am going to teach everyone secret to saving. Drive a cash Car car payment generally are 15% of a pesrsons income. Look at housing within 25% of income on a 15 years mortage. Put 15% of the income in retirement and 10% in savings. The remaing for bills.
If you stay on this budget you can buy a home avoid PMI with 20% down payment and be within goal in a few years.
I follow this plan seem easier when theres no stress. Some how having positive attitudes I been promoted and 3 raises in the last 2 years


skeksis September 29, 2009 at 11:51 am

Why do you think Americans started saving less money in recent decades?

Insanely low interest rates maybe?


Tom September 29, 2009 at 2:29 pm

While indexing the graph to inflation would be informative, it is not necessary since the debt increase significantly exceeds that of inflation. If the graph were fairly level, inflation might be more important, but the graph gets radically steeper as the years move on!


BillShrink_Guy September 29, 2009 at 3:03 pm

Thanks for the comments everyone.

Paul: The BEA’s National Income and Product Accounts (NIPA) personal savings rate is calculated as the ratio of personal saving to disposable personal income. NIPA personal income used in the calculation includes wages, asset income (dividends and interest), rental income and supplements to wages, including pension and 401(k) contributions. So yes, retirement plans are factored in. It’s certainly not an end-all capture of how Americans are saving today, as the NIPA calculation excludes captial gains from investments (including gains within retirement plans and real estate).

Lonnie: You make a good point and we added the consumer outstanding credit graph mainly as a supplement to the personal savings rate graphic. Interestinly enough, the plunge in consumer credit isn’t necessary a good thing too, as many parts of it are due to foreclosures and lenders writing off loans.

Just My Opinion: Good mention. Even if you factor in inflation from the consumer price index, the cost of living in many major metropolitan area has substantially increased.

skeksis: Woops we should have clarify: widely available credit was also because of historic low interest rates.


JustPlainBill September 29, 2009 at 4:01 pm

An increased savings rate is not an unmitigated blessing.

If the individuals are saving, then they are not buying,
and in the midst of a recession, with our economy based about
70% on consumer spending, that does not bode well for a dramatic pickup in business fortunes.


Harold September 29, 2009 at 4:52 pm

Savings is at an all time low because the Federal Reserve artificially sets interest rates low. Banks borrow from the Fed at 0%. How much incentive is there for you and I to save when a savings account earns less than the rate of inflation? It’s not even worth the time it takes to balance a bank statement to earn $1.80 a month. The system is rigged by the banks. Wake up America. It’s time to end the Federal Reserve.


RRWest September 29, 2009 at 6:37 pm

I like the graphic.

Now can you correlate the data against interest rates paid on savings accounts?

Or against household expenses?

How about personal taxation rates or even investment items like retirement plans?

I feel that these are also contributing factors in personal savings declines.


Ruggy September 29, 2009 at 8:52 pm

For 2008-2009, it’s not that “a renewed interest in savings has begun” but rather, that hundreds of billions in debt has been erased. Through deleveraging both corporate (bank failures) and personal (foreclosures and home short-sales) and the transfer of debt (bailouts by deficit spending) a large amount of consumer debt has become public debt.

That’s my interpretation of the recent spike in the graph. It’s not a rise in spending, but a reduction of debt.


P October 1, 2009 at 1:31 am

The more the unskilled and uneducated continue to have babies (in California, 60% of mothers with infants use public money for food and formula – that’s from NPR) that are fed, housed, raised, schooled, and jailed at the expense of the taxpayer, the more unskilled and uneducated people there will be, making little money while being taxed heavily for it.


Patty January 30, 2010 at 10:11 am

Might compare those items available to spend money on then vs now i.e. cable tv, home air conditioning, cell phones, computer service. Saving at least part of that ‘disposable’ income would make a big difference.

As far as the ‘unskilled and uneducated’ … doesn’t say much for our educational system even through college. Need something useful that will feed, clothe and shelter one.

I welcome ALL babies. If not them who will buy products, provide services and pay taxes in the future? That 40% left in California is not enough to take up the slack for the rest of their population.


MS January 30, 2010 at 8:21 pm

I believe we as a nation must stop the idea that cheaper is better. Everybody wants to cut costs, do things cheaper, maximize profit, limit expenses. This kind of thinking is causing this country to slip backwards economically. We are becoming a poorer nation because of this kind of thinking. We need incentives to participate in this economy. We need to stop taxing people making $30,000 and under. We need to stop taxing the first $30,000 of anyones income. This would lead to more savings, more investment, more spending. We also need to create incentives to buy things. As it stands now, a two income family making say $85,000 to $90,000 a year is really penalized if they take on bills such as buying new cars, furniture, etc… because of their tax liability. They are working to pay bills, things they buy which is participating in the economy, and taxes. This recent recession is a good example. Some two income families went down to one income. Many refinanced their mortgages, rolled car loans, credit cards, etc… into the refinance and saved money monthly. They are finding that they have enough money with one income and when they file their taxes, they are finding with the reduced income that their refund is larger than ever! I think the government has it all wrong. They should be giving incentives for participating in the economy, or buying things. If we don’t buy things people don’t work. If person A doesn’t spend any money, person B doesn’t make any money. We need incentives to save, invest, and buy things. We need to make work pay instead of the current system which only serves to put most workers on an endless treadmill of paying bills, things they bought and taxes, a never-ending cycle. In my opinion the government needs to take a look at creating economic stimulus by creating incentive to participate. We need a plan, a multiplier that will free income for people and raise their standard of living. We need to quit doing everything cheap and raise wages and the cost of things. Hey, if you want me to buy a car for $30,000, take on a monthly payment of $500, car insurance, gas, maintenance, etc… then realistically wages need to go up. Even $18-$20,000 is a lot for a car. My point is simple. We need incentives to participate. We need higher wages, less taxes and true incentive to save, invest and spend. That is the answer, not cut this, cut that, do it cheaper.


Mike March 8, 2010 at 12:30 pm

People just need to really understand what WANTS and NEEDS are. I don’t need a 42 inch flat screen LCD TV, I can see the game just fine on my 10 year old tube TV. I don’t need a new car every 3 years, my 12 year old Nissan gets me around just fine. I don’t need a $120/month cell phone bill, my $40 T Mobil bill with unlimited minutes allows me to talk to everyone under the sun. I don’t need text messaging, if you want to speak to me then call me. I don’t need 99% of the things marketed to people, so I do without, and people need to start realizing this for themselves. People aren’t as wealthy as they were in the 50′s because there is more available now to WANT so we go out and buy it. We’re just as dumb about finances now as we were back then, the only difference is back then we didn’t know what else to do with the left over money so it went in the bank. In the 50′s there was one type of TV, three types of cars, one type of phone, and unlimited types of free entertainment using something called an imagination.


Leopold June 13, 2010 at 9:56 am

Such a complex subject, it’s hard to cover an entire economy in a post. But I find one of the main things that drive savings lower is people have so much more stuff they can buy, and it is so much easier to get them or even to find out about them. In the 1950 and 1960s, you could find out about a new product from television, newspaper, or radio. And you probably had only 3 channels of TV you could get. Today, you have 40 channels at a minimum. Radio and newspaper, for sure. But now everything we do is covered with advertising. Telemarketing? Didn’t exist back then. Direct mail? That didn’t become popular for another two decades. Internet? E-mail? Didn’t exist.

Now even the bus has advertising on it. Before, it was just a plain old bus. People wear logo T-shirts when before they’d wear a plain T. Drive down the street, and you find that the highway cleanup is sponsored by X, that the flowers on that curb are sponsored by Y, and that no sign is ever so big that it’s considered too tacky to put up. The hobby shop across the street doesn’t have a sign that just says “Hobby Shop”. It has two banners outside, posters in the window, and a sidewalk A-frame. The place is plastered with signage. In 1950, it would just say “Hobby Shop”. That’s it.

We are inundated with opportunities to buy. We have huge indoor malls that didn’t exist in 1950. In 1950, it was OK for people to stay at home and do things as a family. Today, people feel deprived if they do that.

Then comes the “bomb”. The credit card. Gone are the days when people would say: I can’t afford it. Can’t afford it? Don’t worry. Buy it anyway. We’ll just give you something called “debt”. And since schools don’t teach people about debt, heck they can barely handle teaching basic math and English, we’ll let the banks do the educating. And BOOOM, debt skyrockets.

Then comes the internet. There was a day when you might want something, but just didn’t know where to find it. No more. No matter how obscure your desire, you can find it, and buy it with a credit card with money you don’t have.

All this glitz. All this pressure. And people wonder why saving money isn’t as sexy as buying all this “stuff”?


william August 29, 2010 at 12:18 pm

Definitions of Middle Class
Middle class is a 900-1200 square foot home with 2 or 3 bedroom with one car and one TV. Average income of $10,500.00
Middle class is 1600-2400 square foot home 3 or 4 bedroom with one car for dad one for mom and one for each kid. Flat screen in main family roome and TV in all the kids room. Family average income $110,000.00
Wonder why we cant save like they did in the 40′s & 50′s


Beeker August 31, 2010 at 10:04 am

What is missing in this whole picture is the prevalent of service jobs that pays minimum wage or less income forcing those to borrow money to get by. Typically we are seeing the explosion of alternative financing that operates outside the regulatory and legal vacuum at the state level such as Payday or title loans. Add to that is the marketing by banks since the 1980s to encourage people to go into debt to buy things they WANT instead of SAVING up for it as it was in the years past.

In all, I predicted in 2001 that it would take the economy for a hard landing on few clues that I’ve observed. It is also the first time that it has impacted everyone from the rich to the poor.

Like the saying goes “Those who forget the past are condemned to repeat it.”


Danny L Churchill January 2, 2012 at 8:51 am

There have been many good contributions here as to the reasons and explanations of our poor saving rates in the U.S. in recent years. And I think many of the reasons are valid. They deal with the single biggest reason for our lack of financial statibility and security as individuals, our attitudes. We do have less disposable income then the 50′s-60′s due to housing and taxes, as major factors, but the advertising and wanting of all those ‘toys’ for our consumption has MORE than taken up our available disposable incomes. Why do we THINK we NEED all these ‘toys’ to be happy? That is after all WHY we buy them, to make ourselves happy. As several of the contributors here have mentioned we can easily function in our modern world with far less than the money draining ‘toys’ that we THINK we NEED to keep up with our neighbors, co-workers and friends. I believe our lack of savings rate in the U.S. has far less to do with our personal economics than it has to do with our personal attitudes.


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