How Americans Took Up Saving

Some nations may be known for saving money, but America is certainly not one of them. On the contrary, American consumers have traditionally operated under a significant load of debt, whether it be credit card debt, personal loans, student loans or mortgages.

For a long time, financial reserves have been very low among the average population. However, during the coronavirus crisis, the government has been handing out even larger bundles of cash than before. And, according to one economic theory, in a situation like this, consumers will save more than normal in anticipation of the higher taxes that will be needed to pay the public debt.

Indeed, economic data does actually show a dramatically higher level of savings by the public. Before the crisis, the total personal savings amount in America was around $1 trillion per year. In March, however, the rate of savings jumped to $6.4 trillion per year, and, even after falling off in June, was still holding at $3.2 trillion per year. The rate of savings as a percentage of disposable retirement income (income, including government support, minus taxes) has long fluctuated around 7%. In June, it was at 18%. This metric hit a maximum in March, when consumers saved a whopping one-third of their income.

Does this data confirm the economic theory mentioned above, even in a country where in modern times people have never shown much interest in saving? Unfortunately the answer is no. In times of increased uncertainty, we should expect to see American households holding somewhat greater cash reserves. However, the current rate of savings, despite having declined from the maximum, is still too high and will almost certainly continue to fall.

It should be noted that driving the uncharacteristically high numbers we have observed since March are the details of the current situation. The onset of the coronavirus crisis was marked by unprecedented political and economic measures. The government began to give enormous amounts of money to consumers, whether as direct aid or relief, and it was possible to defer payment of some accounts. Along with this, however, there were restrictions that limited opportunities to spend, and so the savings accumulated “automatically.” The fact that this is not a permanent state of affairs is shown by the speed at which consumers rushed back to shops as soon as restrictions were lifted. Spending on consumer goods has already returned to pre-crisis levels. With services, the recovery has been slower. Spending patterns are changing, but there is no doubt that businesses will find ways to get consumers to part with their money. In reality, consumers are not troubled by government debt, nor will this be a key issue in the fall election.