Americans May Be Forced to Become Savers Again

The average American saved about 9 percent of their after-tax income between 1960 and 1990 according to the Commerce Department. It was less than 1 percent in each of the last three years. That's going to change and it will cause wrenching changes in the economy.

The average American saved about 9 percent of their after-tax income between 1960 and 1990 according to the Commerce Department.  It was less than 1 percent in each of the last three years. That's going to change and it will cause short-term pain but have long-term benefits.

Bloomberg writes:

"`Consumers are starting to realize that they've been living in a fantasy world,'' says Lyle Gramley, a former Fed governor who is now senior economic adviser at Stanford Group Co. in Washington. ``They will have to begin salting away money for retirement, their children's education and other reasons.''

Americans have a way to go to catch up with their counterparts in other countries. The 0.4 percent of disposable income that U.S. households saved last year compares with 10.9 percent for Germany and 3.1 percent for Japan, according to the Paris-based Organization for Economic Cooperation and Development."

That drop in savings means that many of the companies you see today will be gone in a couple of years.  The Big Three automakers will most likely consolidate into the Big 1.  More airlines will go under as vacation travel decreases.  As stores and retailers close, the malls that they support will also shutter.  Already, malls are reporting a 14-year vacancy high in the third quarter, according to New York-based real-estate research firm Reis Inc.  

The downshift in spending will allow consumers to repair their personal balance sheets.  Debt spending will not become the accepted way of paying for vacations, cars, renovations, etc.  This increased savings will benefit the country.  It will allow the US to internally finance its growth instead of relying on foreign countries.  We just need to get through the short-term pain.

Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

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Comments

  • tightwad

    October 21, 2008

    I doubt anyone will learn a thing. Most people just aren't going to change.

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