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Personal savings rates are on the rise. At 6.9% they're the highest in 15 years — and far above the negative rates of only a few months ago. It may be good for people's pocketboooks, but can the economy rebound if we keep saving instead of spending? Some economists say saving could be bad for the economy overall, though it might seem like a good idea for individual and household budgets.
While Portland didn't make the Forbes list of America's thriftiest cities, at least one regional bank says they've seen an uptick in savings that lines up with national statistics. People have approached saving money differently depending on their generation, and it remains to be seen how the current recession will affect the nest eggs of the future.
Are you saving or spending your pennies these days? Have you changed your behavior since the economy took a turn for the worse? If you are saving your money, how are you doing it?
GUESTS:
- Kate Lopresti: Technical writer for a software company
- Mark Thoma: Associate professor of economics at University of Oregon
- Loren Skogland: Co-owner and chef at Milo’s City Café who is highlighted in an Umpqua Bank marketing campaign as a “savings hero”
- Terry Donahe: Certified Financial Planner and principal at Cascade Wealth Management
Photo credit: Tanya Ryno / Flickr / Creative Commons
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Well said.
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I've often been slapped on the back of the head to save six months of gross pay in case disaster struck. Debt was taboo as well. Now I've upped the six-month recommendation to two or three years. No one knows how long they will be out of a job today. Plus new jobs don't pay as well.
Savings allows you to continue living the life style you' re accustomed to during down times. You won't have to stay awake at night because savings provides a buffer between yourself and failure. You can always cut back, but you can't add what you don't have. If you don't have debt the big guys in suits won't knock down your door to repossess your stuff.
We have always recovered from past economalypses(tm) so I expect recovery this time too. However, due to the depth and breadth of this crisis, it might take a long time for people to forget the pain they're experiencing today.
With the increasing cost of everything it's challenging to save enough. I wonder how many of us will successfully put ourselves through the sacrifice and discipline to pay ourselves first?
Economalypse(tm) is a Doublespeak contraction of the phrase "economic apocalypse". Two plus two is five. Less is more. Weakness is strength. You get the idea...
George Orwell's Down and Out in Paris and London has disturbing descriptions of Depression-era poverty in Europe in case you need cheering up.
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Even if you decide to not worry about short-term consequences, the long-term impact of not saving is huge. The ability to retire comfortably or even to cut back on the 50+ hours a week we all work to stay afloat is in deep jeopardy.
First of all, the double-edged sword is that we're all living longer and living better ... almost 80 years on average. Second, companies no longer provide defined-benfit retirement plans (look what those did to the airlines and automotive industries). Finally with the shift in population from 20 workers / retired person in 1980 to 4 /1 now (and projected to be 2 / 1 by 2050), social security benefits are going to be smaller and available much later in life.
It is each individual's responsibility to save for later ... or work until you drop.
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Save your money. This isn't just a regular recession, this is a reset of sorts. We're resetting to lower, more sustainable rate of consumption. The years from the mid-90's till 2007 were the aberration, now we're adjusting to a new normal.
We're saving 30% of our income (and that's not counting 401K contributions). Our goal is to have enough money to be able to weather long-term unemployment (1 or 2 years). If the worst doesn't happen, then we'll still have a nice nest egg and that will allow us a certain amount of freedom that we wouldn't have otherwise.
As a side benefit, lowering our consumption is beneficial for the environment.
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Maybe it's time for a show on what my become an emergent life style: life without work.
Seems that India and China are pumping out huge numbers of educated scientists and engineers as European and U.S. education declines (especially for the have nots.)
So many people search for work and there are too few jobs to support them. Seems like we will be forced to make as fundamental a change with our work expectations as climate change.
For the U.S. it seems like we should be making more stuff and being fairer to the people who live here. The days of Consuming China Cheap appear to be at an end. What is the U.S. going to do to continue providing value to the U.S. and world?
I thought the idea of taxation was to not only pay for the care and maintenance of our national and international infrastructure, but to provide a safety net for people when the economy gets sick. Our system was initially designed so that we would take care of each other when things got hard.
Part of that process is that people must save for their own rainy days too. However, there is a disconnect for people who remain in poverty even if they work two or more jobs. These folks are caught on the hamster wheel of infinite suffering and they can't get off.
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It's a false dichotomy to say that saving is hurting the economy. In fact, in the longrun an increase in savings will help the economy. There will be more money available for investment. Capitalism requires capital and we can't keep borrowing that capital from China.
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I've cut back on memberships and donations. Probably even let my OPB membership lapse. I haven't downgraded my cell phone and Internet yet, but that's on the cutting board for the future.
I buy everything with cash and return the change to the savings jar. I deposit change every month or so into saving so I can have another emergency buffer.
The economy must help me before I can help it. So far I've been throwing my money at Big Oil and Goldman Sachs. Hey, rich people, use me and abuse me because I'm your favorite groupie. (Thanks Sir Mix.)
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Good to hear from Kate (I'm another Timberline Alumni). We're going through the same exercise and have been doing so since late 2007. I agree with Kate that the hardest part is prioritizing spending. It's easy to cut back on things for yourself. Much harder for your kids. And hardest of all for charities that serve the neediest among us or help children. We focus our charitable contributions on two areas: children and education and I just received my OMSI renewal in the mail. OMSI hits the sweet spot for us since it contains both priorities. Still, I'll think long and hard about matching last years contribution ($1000) or doing less to build that buffer in case of layoff for either myself or my wife.
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Saving too much is the least of our economic worries---yes of course it may cause an impact but that impact is quite frankly too bad. If middle-class-Mary wants protection, because she can't trust the financial institutions, the traders and the regulators to fairly function she has every right to hold her pennies. The last thing we need is to now find blame with the average saver.
To save or not to save in general, that is another matter. I have to admit I am not the best saver, but I also don't care. I won't live my life worrying about the future, I can't stand my life right now! -
I don't have any money to save so don't worry about me. Thanks Beech ESS
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I used to spend, spend, spend and that has now backfired on me. Now I save, save, save. I don't feel guilty at all because I know its what I have to do to survive financially. No "spend for the greater good" mentality will get me to stop saving.
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I'm (relatively) lucky. I just got reduced to 15 hours / week, and have applied for UI, now being in my 'waiting week.' Between the two, I'll probably net about $1,900/month, representing about a $900 deficit on a monthly basis. Needless to say, I have cut back drastically on many, many things!
The fortunate part of this is that I have been a (relative) saver for some time, and have a liquid base of about $40K, cash and equities, from which I can draw if need be. Many, many people have no such base - so I do feel lucky, and will definitely continue savings.... -
I thought I was saving . . . . Now I am saving less, because ...
For most of my working years, I had from $350 to $1000 a month taken out of my monthly paycheck and deposited into my Tax Sheltered Annuity. I thought I WAS saving for my retirement.
Every news outlet, pundit, and my financial advisor told me that it would be silly to put my money in a traditional savings account where it would earn little interest. So into the TSA my $$$ went, and now 50% of that is gone.
Many people did think that they were being very conscientious about savin--by putting money into such accounts. Now, the media and the pundits are castigating us for not having put more into traditional savings accounts.
Currently, I can only afford to put $100 month away in savings, so, I am actually “saving” less.
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My wife and I have always been fiscally conservative and have been consisently saving since we married 5 years ago. I have always felt that having a regular savings gives my finances a buffer and resiliency in hard times. I think starting to save when the economy goes bad is not good...it's too late! I feel governments should do the same. At both the personal and government level, I think Americans have just exhausted all credit and stretched finances to the max that there is no resiliency in the system, so when a few companies fail, the whole system is affected. Isn't it up to each individual and the society as a whole to start building a buffer, especially in good times? Because my wife and I have been saving, in the past year, we have spent more than ever before on appliances and home remodeling. We are still doing very well and our life style has not needed to change much and we feel a sense of security despite all that is going on. I am Chinese and my wife is caucasian, but we share similar financial views.
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This idea that money is sitting around in bank accounts and being "wasted" seems odd. I keep my emergency fund in a bank. The purpose of that money is in case I have an emergency (lose a job, need a new roof, etc.) My emergency fund is a significant amount of money and I want it to be very safe - not in the market. It's not somehow languishing in the bank - it's there for emergencies.
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Yeah; I'm with you (see my post, above). The point was made correctly earlier, too, that borrowing from financial institutions for investment and new business development would be impossible without savings. So, definitely not languishing.
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The Motley Fool teaches people how to invest their money themselves. With their help I've been investing in the market throughout the crash. I've done pretty well this year thus far. (Knocking on my wooden skull.)
So many companies stocks have been eviscerated by the downturn that they've become attractively priced. It's counterintuitive and crazy feeling to invest in this market, but every economic downturn has eventually been followed by a recovery. Warren Buffett has done well by investing intelligently in the market all the time and for the long term.
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Saving money is not the problem, it is never the problem. If there is a problem then that lies in our economic model and its malfunction---do to overvaluation and lack of regulation. It the market can't handle the new savings, then the market has some fundamental flaws that supersede increased savings. Asking people collectively to take added risk is not the way to fix our market.
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Yes, our economic model depends too heavily on consumption and living beyond our means. 70% of the economy is consumerism. That needs to change. That's not sustainable economically or ecologically. We need to produce more, consume less and save more.
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This discussion apparently catered to those with excess money to save/spend as they clamored lost wondering what to do with it. The tone of fear kept appearing, of course we all know what is causing this. 15 million people who permanently lost their jobs across the US, and half of that number, 7 million occurred in the past couple years. My republican friends want to blame this condition on [others.]
One could not help seeing the other comments here about those who have nothing to save. It was interesting that the discussion did not address those people. I may have missed part of the discussion but the bank that took my home of 20 years in foreclosure due to job loss last year that I designed and built, lacking a few payments, now offers little or nothing in savings returns for holding my funds in the bank. Where did all those interest payments go for years that I paid the bank? This is a corporate and government caused problem that they refuse to admit ran amok and unregulated as allowed business crimes. Now they want us to invest in them?
I am semi-retired as many today, taking my early retirement pension because of severe lack of employment, and Portland is especially suffering this condition worse than other regions of the country. My home town, now said to be the most desirable place to live by national surveys now has the highest number of unemployed and homeless per capita by states in the nation.
I have spent much of my time providing community service public astronomy, across the nation and overseas, lecturing for students of art and astronomy with my award winning astronomy art as I know this is missing in education systems today. I receive little if no honorariums for this voluntary work. I have spent thousands in travel expenses to do this yet education systems cannot compensate me. Instead of saving, I have invested in human nature and needed education that is missing from our learning institutions.
Mark Seibold, Retired Artist-Astronomy Teacher
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This question of whether an individual does or should feel guilty for saving seems to me to be incredibly wrong and illogical, if the desire is to build a strong, healthy economy and society over the long term.
The question implies that saving damages the economy. The only economy that is damaged by saving, thinking ahead, spending responsibly, and using resources responsibly is an economy that is already sick, and perhaps morbidly so.
If, as a society, we have any care about what we will throw into the laps of the children who come after us, we will let this spend-like-there's-no-tomorrow economy die a very natural death. For those of us who created this particular economy, it will be painful and it will hurt. But if we really care and if we have any logical sense of guilt and remorse, we'll hunker down and take our punches and do our best to create a more sustainable economy going forward. -
Couldn't agree more. The Powers That Be ( like Goldman Sachs and its subsidiary, the US Treasury ) want us to keep living beyond our means and borrowing. If we are going to create a more sustainable economy we need to start radically reducing our consumption. Refusing to consume can be an act of defiance.
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I have always been a saver. Wish I had been MORE rigorous at it at certain points in my life, but I've always lived within my means and saved. I used to take grief from colleagues for being frugal (go ahead! you deserve it!), but not anymore. My job will disappear in about a year, and I'm very glad I've saved all these years. Hopefully, I will have lined up another one by then, but it's so reassuring to know that I do have that financial cushion if needed.
Also, I didn't buy a house during this bubble because I thought it was unwise. Now, when I do have a stable job again, if I don't end up draining down savings, I will have a nice downpayment. The only way the housing market can rebound is for NEW buyers to get in, and the only people who can do that are those who saved. So this whole idea that people like me are a drain on the economy is nuts. If no one has any money to spend, how do you think anything is going to budge?
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Comments are now closed.
First, to the issue as presented:
The entire economy turns on the aggregate behavior of its participants. If enough people stop spending on a particular commodity or service, some of those who provide them go out of business. Those who go out of business represent a subsequent ‘wave’ of diminished spending and diminished spending capacity, and another ‘layer’ of providers begins to suffer. If enough people and businesses operate on sufficiently thin margins, the tipping point for collapse of the entire system is determined by smaller fluctuations in the driving aggregate and is reached sooner and that collapse is harder to overcome – some activities will be permanently jettisoned in a recovery. We will quickly move beyond deciding how many cars we can drive at one time and how many plasma TVs we can watch at one time to deciding how many rooms we need to heat and which of our children get new shoes. Some of us have already had to make those decisions.
Now my observations:
An economic model that demands and depends on growth cannot long survive.
The myth of the self-equilibrating marketplace should be seen for what it is – a myth. If regulation itself can be regulated, we have a chance. But, in the face of the special interests involve, maybe we have no chance at all.
A work ethic which is subverted into a drive for all that can be brought within your grasp instead of enough to sustain you will eventually be seen to be unworkable.
I paraphrase a known linguist and social/political commentator: Take a step back and see – in whose interest is it that things remain as they are? Certainly not yours and mine.