Is Personal Saving the New Black?

Is it possible that saving is back in fashion? That's what I wondered after absorbing the Commerce Department's May Report on Personal Income and Spending.

Those who are lucky enough to have jobs, saw incomes increase by 1.4%. Sure this may have been due to the bump in paychecks from the stimulus plan, but that's not what's got me thinking. It's what people did with that extra money that is worth noting.

Instead of siphoning off the extra cash to the nation's retailers, Americans actually saved a good chunk of money. The personal saving rate jumped to 6.9% in May, begging the question, has the age of parsimony dawned in America?


Before getting ahead of myself, I turned to Q1 flow of funds data from the Federal Reserve. The information tells a similar story--after being crushed by a deep and lengthy recession, savings rates are increasing. That is the necessary remedy to repair consumer balance sheets, although not so great for the economy, but that's a different post.

But we have a long way to go. According to the Financial Times, the flow of funds data demonstrate that the current rate of savings is "equivalent to only 2.3 per cent of gross domestic product, having been almost twice that level during the 1990s recession and more than 6 per cent in the early 1980s."

You don't need to throw these statistics at Americans--they instinctively know what's necessary. With the credit party over and the numbing effects of the hangover starting to fade, it's time to take action. Living beyond one's means is so first decade. In the second decade of the new millennium, personal saving is the new black.

Image by Flickr User alancleaver_2000, CC 2.0