The Best News Coming Out of the Recession

by Jason Unger

In October of 2006, I wrote a simple post at the Online Savings Blog called “Rule #2: Spend Less Than You Earn“.

Now, this is one of the most fundamental basics of personal finance: don’t spend it if you don’t have it.

In that post, I linked to a chart of the Bureau of Economic Analysis’ Personal Savings Rate of Americans. And it wasn’t pretty.

I had always read that, in our age of credit cards galore, saving was down. But I never realized how bad it was, until I saw the Personal Savings Rate for the average American.

It’s less than zero.

So what does that mean?

People are spending beyond their means. They’re buying things with money they don’t have, going deeper into debt and making saving impossible.

Fast forward a few years, and our debt has consumed us. You don’t need a history lesson — this is reality.

But now that more people are focusing on proper money management and not living beyond their means, the savings rate has changed dramatically for the better.

Take a look at the chart now.

Personal Saving Rate

From the third quarter of 2005, when the savings rate was negative, to the first quarter of 2008, when it went over 1 percent, to Q1 of 2009, when it actually went over 4 percent.

And that, my friends, is the best news coming out of the recession. The key, however, is to continue to keep the savings rate this high, even when the economy turns around.

{ 1 comment… read it below or add one }

Louis June 5, 2009 at 4:25 pm

The personal savings rate averaged 10.4 percent from 1980-1984 and has been on a downward trend ever since (up until now as you point out). Interestingly, the general bull market in the US started in 1982. In addition to a declining savings rate, I believe technological advances and globalization, among other productivity gains, contributed to the general rise in the stock market.

I wonder how much pain the economy will have to go through if the savings rate increases to a 10% level. How much of our apparent growth in the past 25-30 years is attributable to productivity gains vs. living beyond our means?

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