Why You’re Going to Save More, Like It Or Not

Reader Comments
Back to blog

After finally realizing in 2003 that revolving credit card and installment debt was EVIL, I paid all my debt and have saved @ 25% of my income each year. Last year, I purchased 2 new cars and went on 4 vacations. And, each vacation and down payment was charged on a credit card to earn points. I have now redeemed those points for CASH and saved that too. So insteed of being a SLAVE to the banks, they are now paying me to consume. For most Americans, shopping at Walmart, etc may seem like a money saving thing, but in actuality it is destroying this country. All that cheap plastic from abroad does nothing in the long term to help oneself or this country.

Steve of FL 1:01PM August 30, 2009

It seems that many are focused on an early recovering funded by returning to excessive consumption utilizing borrowed money. Isn't that what got us into this mess. I would rather have a recovery based on a return to our production roots. A society cannot long exist on consumption without a production base to fund it. We need to return to a balanced economy, where early on we would reverse our trade deficit in order to reduce our debt. If we are unwilling to produce more, then we must spend less. It appears that more and more Americans are coming to this realization and are reducing their spending. Since our politicians are unwilling to make these tough choices, it is good to see that we the people are making the necessary sacrifices.

Concerned Citizen of OH 11:10PM July 24, 2009

People I know are NOT saving. Not exactly. What they ARE doing is paying off credit card debt. Largely because the credit card companies have started charging unreasonable fees and interest. The solution is to pay off credit card debt and never again run a month to month balance. That's the kind of saving I see - an end to paying credit card interest and fees.

Holly Black of CA 5:10PM July 10, 2009

What a misconception that people are saving. A real laugh that you think they saved the bonus money. With inflation hitting everyone in the pocket, that money was used to eat and keep the wolves away from the door.
Do you think now days when we all are barely managing on our income, a loved one is unemployed and the staples at the grocery store have doubled, that a measley pittance from the government is going to do more than help pay for the basic necessities of life? Who can afford the luxury of a savings account?
We though we had some equity in our home, keeping it maintained and hoping it would help us in our retirement years. Well our IRA's have imploded, our house is no longer able to sustain equity, our investments have tanked. One of us and a son is unemployed and the other is a senior with cancer and burdened with the thought of perhaps losing work.... and you think we saved the $500. FAT CHANCE!!!
I'm sure most ordinary, middle class and lower Baby Boomers have the same existance these days. Also thinking, how could this happen when it was my time to retire and enjoy life.

M. Bergrud of FL 3:02PM July 09, 2009

Think about this, why did GMAC rename itself Ally and start a huge new add campaign to get you to bank with them?
Answer: They NEED your deposits so they can then lend TEN TIMES that amount in 0% interest car loans!
Saving money does NOT take it out of the system. Though paying down your credit card debt might as then the lender has to go find someone else to take a loan on their deposits.
Right now people are paying down debt and saving. If they weren't our government would have an even harder time than it is already having borrowing money (in case you hadn't noticed the Federal Reserve IS monetizing our debt--both publically for the Treasury and commercially for all the companies out there who can't get any more money from the suckers that aren't members of Congress or living at 1600 Pennsylvania.)
If people are saving too much and consuming too little, then won't prices fall to induce more consumption? The inflation numbers don't seem to support this. Won't real interest rates and return on investment (not those the Fed manages to artificially control) fall and make savings less attractive? As far as I can see people are flocking to gold and commodities to try to prepare for the inflation and high interest rates that private investors are demanding for their money.
The problem is not that people are saving. It just looks that way because they have less debt than last month. And can you blame any of them? If you have any debt in revolving credit or in a non-fixed interest loan, you NEED to pay it off before the reckless money creation of the Fed destroys you. The problem is not that people are saving too much, the problem is that we have so much debt, it has to be paid down, and when we do it LOOKS like we are "saving."
I suppose somehow we can get ourselves out of this by printing money and taking on even more debt and then defaulting on the rest of the world. I'm not sure how that would work though.

Scott of NC 9:38AM June 11, 2009

Send me all your savings Rick and I'll spend it NEXT DAY.

Praveen of FL 10:07AM June 08, 2009

"Congratulations, America: You’re learning how to be thrifty after all.
Now, for the sake of the economy, would you please cut it out?"
Please, Rick, don't be stupid! Consumers are acting accordingly. Consumers have been knocked on their asses. The consumer will continue to save until they have a cushion big enough to buffer the pain that's being inflicted. Only then will the consumer resume spending.
The real question that needs to be asked is who are these savers anyway and what can the government do to enable THEM to become consumers again?
I think these savers/potential consumers are not the people that are way over extended like the government is currently bailing out. I think these savers/potential consumers are not yet in trouble but are uncertain of the future. Here's your hint: Remember that larger group of people out there that's still working and isn't under water with their mortgages?
So, what's the solution then? What can the government do NOW to enable people to get their buffers back? How about extremely low mortgage rates to whomever legally qualifies? I'm talking about a 3.5% fifteen year, a 4.0% thirty year and a 4.5% forty year fixed interest loans. Of course these would have to be REAL loans, meaning NO points and LOW costs. Nothing more creative would be necessary. This would be enough to put additional money in people hands each month. The government could easily spool up Fannie Mae and Freddie Mac to handle the loaning out the money.
Why handle it this way? Why not? These savers represent a large group of people who are closest group to becoming consumers again. And since consumers represent some two-thirds of the GDP, what better way to get the economy moving again. Besides who would pass on an offer like this? Not me! I think other people wouldn't want to miss out either. Put some money in peoples hands and they will do the rest. After all, deep down we are all consumers.

Dan Jossart of CA 1:53AM June 08, 2009

This paradox is, of course a big reason why the recent stimulus package needed to be a spending package designed to get cash flowing into the economy as soon as possible.
Good jobs, especially those that provide long-term benefits by improving the nation's infrastructure, will help get us turned around much sooner than doing nothing or providing tax cuts. Tax cuts would not have moved the economy forward and would merely have increased our ungodly deficits even more. Doing nothing would have been better.
Remember those 'stimulus' checks they sent us a while back? Remember who benfitted from that? Wal-mart. The government sent us money and we sent it to China.
The other important key is to make money available for businesses. When money dries up, inventories drop, projects get put on hold, and hiring stops. The banks that we bailed out, and in some cases own, need to step up right away.

jimatmadison of WI 6:59AM June 07, 2009

A good article in part, but if there will be inflation, cash will lose value.
What is safe? Gee how about real estate? With interest rates still incredibly low, it is possible to get a 30 year fixed on a rental property such that the mortgage will be substantially less than cost to rent in out, or the cost of a comparable rental. So you have instant positive cash flow.
Houses have *already* crashed, and in some places they have gotten very cheap. If inflation comes back as its starting to, that mortgage payment will keep getting easier and easier.

Daniel Hess of MD 10:28PM June 05, 2009

Rick Newman is correct, the savings rate has surged and increased savings (vs. consumer spending) will keep the economy from quickly reviving. The additonal economic problems are more complex than that, of course, but Rick only has so much space in his column. The greater problem is that the future is so uncertain; people have no idea of where to put their money, what kind of investments to make, or even what to buy. We know that the Obama Administration is spending unprecedented amounts of money--and in spite of Ben Bernake's warnings yesterday suggesting that we rein in spending, there appears to be no end in sight. So does that mean hyperinflation is almost certain? Does it mean we should all buy commodities? Get back in the stock market? Buy depressed housing, or as Newman musingly suggests, putting it into your mattress, er, bank savings accounts? When people are paralyzed by uncertainty and fear, they do nothing.
The other reality is that small and medium sized businesses (and even some large ones) still cannot get adequate financing, and if they can, it's very restrictive and at unattractive rates. Increasing the rates now may help CD investments, but it would kill business--and this Administration has done a pretty good job beating up business already. When we stop all this wasteful government spending in order to create make-work and government jobs and find ways to improve financing for businesses, including technology, and slow down this plan for Cap and Trade and the threat of unionizing, we'll start to pull out of this recession. But that may not happen on Obama's watch.

Sherlock Holmes of NH 9:38PM June 05, 2009