The Bureau of Economic Analysis (BEA) announced on June 1, 2009 that April’s U.S. Personal Savings Rate hit 5.7%, the highest level since February of 1995 (5.9%). And although the economic stimulus plan was aimed at increasing spending to support the economy, much of the increase in real disposable incomes went into savings.
Moreover, in their search for financial safety and security over the past year, consumers have actively redistributed their financial resources. Encouraging this trend and seeking to help stabilize the economy, the FDIC has extended its increase in insurance limits to $250,000 to the end of 2013.
This news should come as no surprise to anyone.
Much of the opposition to the economic stimulus plan centered on concerns that the stimulus money would be saved, and therefore not provide the hoped for stimulus. The BEA report illustrates the fulfillment of the basic concepts that people are going to hold on to their money when, 1) money is getting harder to come by, 2) people are afraid to spend in an unstable economy, and 3) the smart spenders know that if they hold out long enough they can get a better deal than if they spend the moment they have a little money.
Note this simple definition from Wikipedia: “Saving is the conservation of money…Saving also includes reducing expenditures, such as recurring costs. In terms of personal finance, saving specifies low-risk preservation of money, as in a deposit account, versus investment, wherein risk is higher.” It’s not rocket science–in a down economy, people save.
So, at the risk of sounding like a punk kid, I respectfully say to the Bureau of Economic Analysis and all politicians who thought the stimulus should have had a different effect: “Duh!”
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