Background
Readers of this blog know that the long term savings rate plummeted as Boomers entered the workforce. This presents a huge risk to many households’ ability to retire comfortably. But with the pandemic came a gusher of money into the pockets of Americans. Initially, this led to a big jump in the savings rate. Have Americans continued to save, or is the savings rate tanking again?
Findings
- Regrettably…yes: The savings rates has dropped back down to 8%, a pre-pandemic rate. In January of 2022 it dropped even further, to 6.4%.
- Spending is the highest…ever: In the fourth quarter of 2021, American households spent $4.1 trillion. This is a new record. It’s driven most by jumps in spending on cars, food, housing, and health care.
- The pandemic “slowdown” lasted only one quarter: The popular perception is that for much of the past two years we’ve been holding off on spending. The reality is that once the first stimulus check hit our pocketbooks, we immediately did what the government wanted us to do. Spend.
Implications
There’s plenty of analysis showing that a 7% savings rate isn’t high enough to provide adequate funding for many households’ retirement goals. The one small bright spot in this data is that with income also higher than ever, the absolute dollar amount of savings is larger than before the pandemic. It’s not that much more, though. As a result, the issue is that once again our culture of consumption means that we are giving up future comfort in return for current retail therapy.
Certainly every client has a different situation. That said, it’s quite likely that most banking and brokerage clients are not saving as much as they should and would benefit from any counsel that drives them in this direction.
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The small print
This data is from the Bureau of Economic Analysis. I’ve used actuals, not inflation adjusted numbers. This doesn’t change any conclusion – up until the last couple months inflation has been quite low.