Neglecting the Piggy Bank why Households Aren’t Saving in Recession

There have been conflicting media reports since the recession that the consumer has begun to tighten his or her belt and started to save more. However, statistics from various public and private agencies suggest otherwise.

It was believed that when the recession was instigated households would balance their household budgets, cut spending and put any extra cash into their savings accounts. Although there have been a small percentage of individuals performing this necessary action, the national savings rate in both Canada and the United States has fallen.

The latest Department of Commerce report suggested that consumer spending in the U.S. increased 0.8 percent, while incomes grew 0.4 percent. Unfortunately, in order to spend money, Americans have cut their savings, which was the trend throughout the third quarter of 2012.

Overall, the savings rate in the U.S. is 3.6 percent (2.9 percent north of the border).

Why haven’t households saved money? There are a number of factors to consider as to why they aren’t embarking on the road to fiscal prudence. Here are five aspects to think about:

The Federal Reserve System: The interest rates in the U.S. are at Japanese levels, which, for those who are unaware, is quite low.  Therefore, for general savings accounts there isn’t much of a return on a $1,000 investment.

Inflation: It also important to mull over that inflationary policies have also forced the consumer to reconsider the savings concept. Think about it, if the currency is worth less tomorrow and prices are going to go up tomorrow then why wait to purchase the desired item?

Interest Rates: It was previously noted that interest rates are low, but this isn’t a positive because consumers are neglecting the future for the present. It is rather easy to attain credit and when interest rates are low the monthly payments are also relatively squat.

Life of Consumption: For years, the Western world has not had to worry about the future. The Faustian economic and fiscal policy has been common for quite some time.  The concept of living beyond your means has led to living beneath your means. When a nation’s economy is two-thirds consumption, there’s reason to believe that we won’t understand the idea of saving.

No Money: With stagnant incomes, a rising cost of living and inflation (see above), there is no money left over at the end of the month to save money. Finding efficiencies in your monthly household budget is step in the right direction, but once you do that and there is still nothing left over then this can be certainly ascribed to failing government policy.