Savings in America

We all know that we’re supposed to save. You have to save for retirement, emergencies, college, large purchases, etc. However, this doesn’t mean that everyone is saving or knows how much they should be saving. During the peak of the housing bubble, the savings rate for Americans dropped to an all time low of .9% meaning we were saving less than a penny for every dollar that we spent.

This lack of savings that we saw in 2005 seems to have caught up with us. The Employee Benefit Research Institute found that most Americans have less than $25,000 saved up for retirement. 27% of Americans even said they are not at all confident about retirement. The Harris Poll also found the 27% of Americans had no personal savings.

With the subsequent recession following the housing bubble, many Americans struggled to pay for the basics, let alone save anything. This has caused about one third to tap into their savings to cover basic expenses.

However, it’s not all bad. Due to the amount of mortgage foreclosures, banks have had to write off billions in loans that went bad. That means they were much less willing to extend loans or credit, forcing many people to stop living off of their credit cards. With no other option, this has caused many Americans to start saving and paying down their debt.

In fact, according to the Commerce Department, Americans are now saving about 6% of their disposable income. On top of that, Americans now have 7% less mortgage debt, 12% less in auto loans and 15% less in credit card debt. Even retirement savings were up, with the average 401(k) balance hitting a 10-year high. Talk about a massive overhaul!

Building up savings and paying down debt are key factors that can help the economy. Once consumers get to the point where they are comfortable with their savings, they will start spending again – boosting the economy. Of course, finding the right balance between saving and spending will also help to avoid another recession.

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Recession or not, everyone should create a budget to see how much they can save and where their money is going. Look into your company’s 401(k) plan (if you haven’t already) and set up automatic deductions from your paycheck. Most companies will even match contributions, so you’re losing retirement money if you don’t take advantage of this.
Hopefully, this new outlook on saving becomes a trend rather than a fad. Only time will tell if consumers have actually learned anything from this experience or whether we will see another generation of Americans reach retirement with too little too late.
Do you think we will continue to save or fall back into spending?

This article by Maiane Cassanego first appeared on Credit Zeal and was distributed by the Personal Finance Syndication Network.