As Savings Rate Soars, Study Shows Easy Credit Dampened Savings During The Boom Years
While the traditional view has been that savings rates reflect changes in household net worth, a new study by the Federal Reserve Bank of San Francisco shows a clear relationship between credit availability and household savings rates.
As Americans cope with economic uncertainty and debt by boosting their savings rate, they also are cutting spending levels, which is counter to current efforts by the government to boost the economy by keeping interest rates low and injecting liquidity into the system.
However, that short-term consequence of higher savings rates will be offset in the long term by the fact that bigger household nest eggs will eventually ease more Americans’ transition into retirement. And most of the households now saving at a higher rate are middle- to high-income households.
In other words, those savings will translate into more availability of funds for investing down the road. And that’s good news both for individuals and for the financial advisors who will help them shepherd those savings into and through their retirement years.