Tuesday, June 23, 2009

People Are Saving More Out Of Fear

This may be more of a macro issue, but the Wall Street Journal reported that "personal saving as a percentage of after-tax income rose to 5.7% in April, the Commerce Department said Monday, up from 4.5% in March and well above the zero savings rate reported a year earlier." The article is called Americans Get Even Thriftier as Fears Persist. People are fearful of losing their jobs, so they are saving more than they used to. Here is another exerpt from the article:

"The shift toward a higher saving rate is likely to persist even after the economy recovers, said Christopher Carroll, an economist at Johns Hopkins University who studies consumer behavior.

The low saving rate that persisted until last year was due in large part to an expansion in the availability of credit. On the heels of the financial crisis, credit availability has gone into reverse, making it more difficult for consumers to spend beyond their income.

Just as the Great Depression ushered in a shift in behavior that affected an entire generation, Mr. Carroll said this financial crisis will shock consumers into behaving differently. "People had got the sense that the world was very stable and everything was very predictable and reliable," he said. "That's a hard view to hold onto now.""

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