Saving & Spending
The first year the Bureau of Economic Analysis began to track saving data was 1959. The personal savings rate was then 8% and remained in the 7% - 8% range through out the 60s. In the early 70s, the rate spiked, hitting a peak of 14% in 1975. The sharp up-tick coincided with a deep recession during the same time period. Then in the early 80s, another recession brought about high inflation accompanied by weak economic activity, referred to as "stagflation". During this period the savings rate climbed above 10%, then fell back again as the economy began to recover.
Yet another recession occurred in the early '90s. The savings rate held steady during this recession and then proceeded to plummet over the rest of the decade. By January 2000, the average savings rate was 3% and would fall to 1% or less multiple times from 2000 and 2010. With the economy near collapse in 2008, the savings rate began to trend higher, moving from 1% in January of 2008 to 4% in December of 2009.
What caused the dramatic drop in the savings rate between 1990 and 2008? The psychology of the US consumer took a dramatic shift due to a surge in credit availability. The proliferation of easy credit made people want to spend like there was no tomorrow. Interest rates were low, the real estate market was sky rocketing and people were in a mood to spend rather than save. And spend they did, abandoning the thrifty mindset of earlier generations. The savings rate dropped to zero, leaving many over extended as the housing bubble burst, and the economy went off a cliff in 2008.
Yet another recession occurred in the early '90s. The savings rate held steady during this recession and then proceeded to plummet over the rest of the decade. By January 2000, the average savings rate was 3% and would fall to 1% or less multiple times from 2000 and 2010. With the economy near collapse in 2008, the savings rate began to trend higher, moving from 1% in January of 2008 to 4% in December of 2009.
What caused the dramatic drop in the savings rate between 1990 and 2008? The psychology of the US consumer took a dramatic shift due to a surge in credit availability. The proliferation of easy credit made people want to spend like there was no tomorrow. Interest rates were low, the real estate market was sky rocketing and people were in a mood to spend rather than save. And spend they did, abandoning the thrifty mindset of earlier generations. The savings rate dropped to zero, leaving many over extended as the housing bubble burst, and the economy went off a cliff in 2008.
The bottom line, when folks feel good about their circumstances, they spend more. When their worried about their futures, they save more. Hence the book title: Save and Grow Rich "How to turn Small Change into Large Fortune".
Roger L. Caron
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