Why America’s personal-saving rate is unusually high

NO WONDER advertisements implore Americans to spend, spend, spend. These days they are positively Swabian, saving a much bigger share of their post-tax incomes than they have done for most of the past three decades (see chart). This is more than just an economic curiosity. Many households’ savings end up in Treasury bonds, reducing the government’s borrowing costs. Savings allow households to consume more later or to cushion the blow of a misfortune. But why is their propensity to save so high today?

Saving typically rises during the bad times and falls during the good. The financial crisis of 2007-09 prompted Americans to pull back on spending and pay down debts. The share of disposable income squirrelled away rose from 3% in 2005 to 8% in 2010-12. These days the economy is much stronger. The unemployment rate, at 3.6%, is at a five-decade low, while consumer confidence is high. As other countries have recovered from the crisis, their personal-saving rates have tumbled. But America’s remains high, and has risen in recent years. Goldman Sachs, a bank, says that the personal-saving rate is four percentage points higher than it “should” be, given the strength of the economy.

One commonly heard explanation for higher saving relates to inequality. Poorer people may save little or nothing—research from the Federal Reserve...

via The Economist: Finance and economics Business Feeds

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