There’s an irony about savings and the economy: When times are good, people save less, and vice-versa.
That means the United States may be heading into a period of increased savings – something financial planners have long advised. For years, the rate of personal savings in the U.S. has been near zero or even negative, but the most recent figures from the Bureau of Economic Analysis show savings are on the rise.
That change began when a lot of people stuck their government stimulus checks in the bank rather than spending them, observers say. In November, Americans saved 2.8 percent of their disposable income – the highest rate in years.
Of course, that means most of us still save far less than experts advise. Ten percent is a common rule of thumb for a good savings rate, though everyone’s individual circumstances and expectations differ. If you’re saving for your emergency fund, retirement and college, that may not be enough.
Most observers say Americans generally need to make a big debt-to-savings shift – get rid of debt and start building savings. A recession might actually prompt more people to do that.
It’s back to “a penny saved is a penny earned-type philosophy,” Wells Fargo economist Scott Anderson told the Minneapolis Star-Tribune. “We need debt levels to come down so that consumers can regain their footing and clean up their balance sheets. … Debt-driven consumer spending will be vilified.”
In the mail
With the economic forecast for this year in the doldrums, experts foresee a rise in late payments.
Delinquencies on mortgages and auto loans are expected to reach a 17-year peak, according to TransUnion Trend Data. And that’s bad news for consumers, even those who aren’t falling behind, since it makes it more likely that lenders will be slow to provide credit for cars and homes.
The 60-day auto loan delinquency rate in the U.S. for the third quarter was 0.8 percent, and could hit 1.03 percent by the end of 2009, according to TransUnion. Mortgage delinquencies of 60 days and longer could rise to 7.17 percent of loans at the end of 2009. Mortgage delinquencies had hovered around 2 percent for much of this decade.