Wednesday, February 19, 2020

Why Do Americans Save So Much?

U.S. household wealth compared to income is near a record high. Unemployment is near a record low. So why is the personal savings rate still so high? In the fourth quarter, savings as a percent of disposable income was 7.7 percent, more or less the post-Recession average.

Goldman Sachs examined this question, and found that the top 20 percent of Americans by income save 12 percent of their disposable income. Households in the 60th to 80 percentile of income distribution — in 2018, households making between $79,542 and $130,000, according to the Census Bureau — have boosted their savings over the last three years.

The reason? Tightened credit standards led to less borrowing. The Goldman forecast is for the savings rate to fall by 2 percentage points through 2022. If the savings rate reverts back to normal, there should by definition be more spending - which is good news for the U.S. economy.

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