The United States’ personal saving rate has hit the highest level for the first time in almost four decades. Data gathered by Leanbonds.com indicates that the start of March this year, the rate was 13.1%, the highest since 1981.
Before the March spike, the highest rate was in November 1981 when it stood at 13.2%. The latest rate is a significant jump considering that at the start of February 2020, the rate was 8%. The lowest personal saving rate during the period under review was recorded in July 2005 when it stood at 2.2%. The personal saving rate hit below the 10% mark for the first time in May 1983 when it stood at 9.9% before surpassing the mark again six months later to stand at 10.3%.
Between January 2011 and March 2020, the rate remained relatively low with an average of about 7.4%. During the recession, the lowest personal saving rate was in August 2008 when it stood at 3.8%. In this period, the personal saving rate was at its highest in May 2008 at 7.8%. Before the recession began in December 2007, the previous eleven months saw the rates remain low with an average of about 3.8%.
The personal savings rate is a measurement of the amount of money, expressed as a percentage that a person deducts from his disposable personal income to set aside. From an economic perspective, saving is a choice to forego some current consumption in favor of increased future consumption, so the savings rate reflects a group’s rate of time preference.
The cash accumulated can be saved as currency or bank deposits. Alternatively, the cash can be put into investments like a money market fund, or a personal individual retirement account.
Factors influencing personal saving rates
Personal saving rates are mainly influenced by a country’s economic stability and total income. For example, during periods of high economic uncertainty, like the recession and economic shocks, there is usually an increase in the savings rate as people suspend current spending to prepare for an uncertain economic future.
The current rates have spiked due to the economic uncertainty that has been caused by the Coronavirus pandemic. Due to the crisis, millions of Americans have been rendered jobless, meaning that more people do not have a stable income. The federal government has stepped in to offer stimulus packages to people who lost their jobs due to the pandemic.
Furthermore, changes in market interest can have an effect on the savings rate. When the interest rates are there tends to lower overall consumption and higher savings.
The value of US personal savings grows for four years straight
The data also overviewed the United States value of personal savings between 1960 and 2019. By the end of 2019, the personal saving value stood at about $1.29 trillion which was the second-highest in the reviewed period. The value was highest in 2012 when it stood at around $1.3 trillion. The 2019 figure slightly grew from 2018 when the value was $1.25 trillion. In 2017, the personal saving value was $1.03 trillion while a year earlier the value was $0.926 trillion. Notably, over the last four years, the personal saving value has been growing steadily.
From 2011 to 2019, the value has fluctuated with the lowest figure being recorded in 2013 when it stood at $793.64 billion with an average of about $1.05 billion. Notably, the lowest value was in 1960 when it stood at $0.038 trillion. The data further shows that after the recession in 2008 the value was rising before declining in 2013 when the value was $0.793 trillion. After the 2008 crisis, the savings increased to over $600 billion when it peaked in 2012 before falling significantly to just over $926 billion in 2016.
The value of the United States’ personal saving value is expected to be heavily impacted in 2020 considering that the economy went into shock as a result of the Coronavirus pandemic. During hard economic times, people tend to hold on to capital for a long period.
When the economic times are looking good, people are usually confident that the good times will stay and hence become comfortable borrowing money since interest rates are low while credit is easily accessible and widely available. When these factors are combined, people are encouraged to spend money.