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.
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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.