3 Positive Effects From the Recession

by Jason Unger

The recession has been bad on almost everyone.

The unemployment rate, though down last week, is in double-digit figures. The government is spending a ton of your money to stimulate the economy, with mixed effects. The financial industry and housing market have both been in shambles.

When it comes to how everyday people manage their money, the recession has had 3 positive effects. Here they are.

The Personal Savings Rate is Up

For the first time in at least 10 years, the personal savings rate topped 4% in the first quarter of 2009, reversing a trend where it was actually negative in 2005.

The latest numbers from the Bureau of Economic Analysis show that the rate is still above 4%, with the second quarter numbers down from Q1 but still higher than any other quarter since 2000.

As a country, we’ve been living beyond our means for way too long. The savings rate isn’t anywhere as high as it should be — can we get to 10% at least, people? — but these are steps in the right direction.

Credit and Borrowing are Down

For the 9th straight month, consumer borrowing is down, according to the Federal Reserve (via USA Today). While credit did not fall as much as economists predicted — $3.5 billion in October, not $9.3 billion — it’s pointing to consumers using money they have saved to spend, not borrowing to spend.

“Households are still in the process of deleveraging. They are increasing spending, but it’s coming out of the savings they have accumulated during the recession,” says Bernard Baumohl, chief global economist at the Economic Outlook Group, to USA Today.

Of course, these economists are worried that if consumers aren’t spending enough, the economy won’t grow. This is a fundamental flaw with our economy; because we’re based on spending and not saving, it’s too easy to go into debt to spend rather than save the money and use it when you’re ready.

Consumers Are Paying Debt Off Before Spending

Good news this holiday season: instead of spending a $500 windfall on stuff, most consumers would use it to pay down their debt. That’s according to a poll from the National Foundation of Credit Counseling.

The poll found that 77% of respondents  would pay down their debt, 14% would save the money, 7% would use it for holiday shopping and 2% would use it to buy something for themselves.

At the same time, in 2010, consumers are expected to make more on-time payments to their credit cards than in previous years. Hopefully they’re paying them off in full.

The recession has been tough to everyone. But it takes a bad event to get you on track. And in the end, you’ll be better off for it.

Previous post:

Next post: