Americans are saving less. That might actually be a sign of economic strength.
Americans are saving less. That might actually be a sign of economic strength.
The personal consumption expenditures index released Friday by the Commerce Department gave us a bit of insight into the financial health of American households, specifically how much money we’re saving right now. The personal saving rate — that’s how much money we were able to keep after we finished spending — declined a bit to 3.2%. That’s the lowest level since October 2022 and could be a sign that some folks are feeling bullish about spending.
Generally, when the personal saving rate dips, it’s not a great sign for a lot of American households, said Angela Fontes, vice president of policy and research at the Financial Health Network.
“We start to be concerned about households’ ability to withstand financial shocks, if, unfortunately, a car were to break down or they needed to replace an appliance,” Fontes said.
But Americans are choosing to spend more right now rather than save for those potential shocks for a few reasons.
For one, everything consumers buy has become more expensive, said Mark Hamrick at Bankrate.
“They resent the high prices that they’re seeing, but nevertheless think, you know, ‘Let’s go ahead and spend,'” Hamrick said.
Two, a lot of people may still be holding on to some of the money they stored away earlier in the pandemic, said Tim Quinlan, senior economist at Wells Fargo.
“When you’ve got a full piggy bank, you don’t feel like you have to set aside as much from each paycheck,” Quinlan said.
And three, high-income Americans have an appetite for some risky investment right now.
“If their appetite for risk is enhanced, savings rate tends to fall because they’re reallocating assets out of liquid guaranteed accounts into more riskier accounts,” said Joe Brusuelas, chief economist at RSM.
Brusuelas said that appetite for risk could grow even more if central banks around the globe start cutting interest rates.
“And I would not be surprised to see the overall savings rate fall on the back of that,” he said.
And, he said, investing money instead of just socking it away could be a sign of confidence in the economy.
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