Why do we save so little? | Planning Insights

Anne Hussman |

Our parents and grandparents saved much more than we do. From 1959 to the present, the personal savings rate average has been 6.84 percent – but the 21st century shows evidence of a significant decline. The savings rate fell into the 1-3% range, dropping to a record low of 0.8% in April 2005. The January personal spending report released by the Commerce Department in early March showed the personal savings rate at 4.3%.1,2  

To some analysts, a declining personal savings rate signals a stronger economy. It implies more spending, and consumer spending has the biggest impact on GDP. You can’t have it all, however; more spending means less saving, and Americans are plagued by insufficient retirement reserves.  

Are credit cards the problem? We borrow greatly, but there are other factors in play. You may have heard about America’s “shrinking middle class.” That is no exaggeration.   

The most recent Census Bureau data shows the median U.S. household income for 2012 at $51,017. Median U.S. household income in 1989 – when adjusted for inflation – would work out to $51,681 today. From 1989-2012, annualized consumer inflation was mostly in the 2-4% range. All this illustrates a slow but notable erosion of purchasing power for the middle class.3,4   

During the same time frame, the cost of college went up 43% and healthcare 59%. People saved less and borrowed more, and not simply on impulse; they wound up borrowing more to maintain a middle-class standard of living.5,6 

However, we are often lured into unnecessary spending. Advertising can convince us that we have unmet needs and desires, and that we must respond to them by buying goods and services. Urges, emotions, living without a budget – these can all lead us to spend more than we really should.  We have a choice – and the choice we make may affect our ability to retire sooner or later.     

While economic pressures make it harder for many of us to do so today, that doesn’t make it any less of a priority.  It might be useful to think about what is best for your future when you think about spending money today. Are those dollars you are spending at a mall or restaurant today better off saved or invested for tomorrow?   

Think about your big dreams and goals. How many dollars are you putting toward them? Is your spending aligned with them, or in conflict with them? Contact us today and we can talk about money well spent.


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1 - research.stlouisfed.org/fred2/series/PSAVERT/ [3/3/14]
2 - tradingeconomics.com/united-states/personal-savings [3/6/14]
3 - billmoyers.com/2013/09/20/by-the-numbers-the-incredibly-shrinking-american-middle-class/ [9/20/13]
4 - tradingeconomics.com/united-states/inflation-cpi [3/7/14]
5 - nces.ed.gov/programs/digest/d12/tables/dt12_381.asp?referrer=report [7/31/12]
6 - healthaffairs.org/blog/2014/01/06/national-health-spending-growth-remains-low-for-fourth-consecutive-year/ [1/6/2014 ]