So Much For Thrift

Saving money just isn’t any fun.

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The A-list economic indicators are GDP growth and the unemployment rate, which tell us at a glance if the recession is over, and if it feels like it's over. (It is over, but it doesn't feel like it.) But I'm more interested in another monthly number: The personal savings rate. This is the figure that tells us if American consumers have changed their profligate ways, or if we're truly addicted to spending and debt.

At the moment, we seem to be in rehab, struggling mightily to break our spending habit. After drifting upward earlier this year, the personal savings rate has dipped from a high of 5.9 percent in May to 3 percent in August. History tells us that a healthy savings rate is somewhere between 6 and 10 percent of income, which is what it was for most of the 1950s, '60s, and '70s. In 1985 the savings rate started a long drift downward, and in 2005 it actually became negative: As a nation, we literally spent more than we earned.

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Many economists have speculated that the Great Recession of 2008-2009 is going to force Americans to become thrifty once again. We can no longer finance cars, vacations, and shopping sprees with home equity loans or easy credit. Banks are lowering lending limits on credit cards and hiking fees. And anybody thinking about retirement needs to ramp up their savings, to plug the losses caused by plunging home values and a stock market crash.

Unless a good sale comes along, which is what happened over the summer. The Cash for Clunkers program did what it was supposed to do: persuade gloomy consumers to get down to the dealership and buy some cars. That single program drove consumer spending in August to its biggest increase since 2001, according to Moody's Hooray for the resurgent American consumer!

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The only problem is, incomes didn't go up in August by the same amount as spending, so our inner saver got shoved aside once again. Sure, we all tell ourselves that we can break the rules just this once, since deals like this don't come along very often. But clunker-like deals are actually pretty common these days. The government's home-buyer credit basically offers cash back if you buy a house. That could get extended beyond its November deadline and even become permanent. Washington could enact other government subsidies if the economy doesn't recover quickly enough. And all that's on top of deep discounts offered by most retailers these days just to keep the doors open. The whole nation is on sale.

There's good reason to be skeptical about the "new era of thrift." It's one thing to put off purchases for a few months or even a year or two. It's a much bigger lifestyle shift to permanently reduce the amount of stuff we buy and get used to living with less. And it's not just consumers who have to do it. The U.S. government is one of the greatest debtors in the history of the world, spending vastly more money than it takes in. Government and political leaders know that saving money is healthy, yet they also know a growing economy requires Americans to spend money. So they create perverse incentives like Cash for Clunkers and send a convoluted message to consumers, like offering an occasional cigarette to a smoker who's trying to quit. Sure, it's just one or two, but that's all it takes to sustain the addiction.

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The real message seems to be: Sure, save more money. But couldn't you wait a year or two, till the economy's in better shape? Spend today, save tomorrow: It's a message we all like to hear.

  • Rick Newman

    Rick Newman is the author of Rebounders: How Winners Pivot From Setback to Success and the co-author of two other books. Follow him on Twitter or e-mail him at

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