Savings Trends

Americans have been saving less and less in the past year. The reasons for this are many and varied — some because they’re spending more on delayed travel plans and vacations that were put on hold during the pandemic, and others because they’re spending more on trips to the grocery store and at the gas pump with inflation reaching an alarming 8.6 percent recently.

The post-pandemic economic recovery is expected to fuel sharp price increases for some time and some economists are saying that Americans should brace themselves for several years of higher inflation than they’ve seen in decades. According to the Wall Street Journal, the estimates are that inflation will have an annual increase of 2.58 percent from 2021 through 2023, putting it at levels not seen since 1993.

As far as savings and its relation to inflation goes, there is a question mark hovering above the “which came first” theory. While inflation is really high, people are also still spending, People have pent-up demand for services after two full years of covid’s effects on the world and now consumers are using their savings to drive inflation, but inflation is also driving them to use their savings. This translates into less and less savings, no matter if it was the chicken or the egg which precipitated the situation.

On the other hand, there has also been a rise in signifiers like credit card debt, which is a plus in the consumer confidence column. But ultimately if inflation is to be brought under control, savings and spending need to be commensurately adjusted.

At one point during the height of the pandemic, Americans were saving 34 percent of their disposable income. With stimulus and unemployment checks flooding the workforce, combined with a lack of opportunity to go out and spend this newfound cash, it’s no wonder that savings accounts were being padded. But as of April 2022, citizens were saving just 4.4 percent. As stated above, that’s no big surprise, but given that inflation is still rising at alarming rates, it means that the economic safety net some folks built up over the past few years is showing signs of not being so reliable and safe anymore.

Saving money is a basic financial necessity that makes up part of your overall financial wellness. Most financial advisers would recommend that you save at least 20 percent of your net income. Everyone should have some money saved up, typically in an emergency fund for things such as loss of employment (in a global pandemic, for example) or chronic illness. 

Saving up in a retirement fund for golden years when earning power would be reduced is another important aspect of your financial wellbeing. You usually get some return on your savings via interest, depending on what kind of savings account you have, but inflation reduces the value of savings with time so the return you make on savings should at least give you something above the annual inflation.

 

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