WASHINGTON (3/16/09)--It took a worldwide economic crisis, but U.S. consumers have finally become serious about saving again, socking away 3.2% of disposable personal income in fourth quarter 2008, according to the Federal Reserve Board of Governors (Mar. 12). This is the highest quarterly saving percentage since 2001. Since then, the personal saving rate even went negative for one quarter. “At times like this, I take whatever silver linings I can find,” said David Mancl, director of the Office of Financial Literacy for the Wisconsin Department of Financial Institutions and a member of the President’s Advisory Council on Financial Literacy. “We Americans have neglected saving recently. And when our incomes haven’t kept up with our desires, we’ve borrowed to keep spending. I’m glad to see people setting money aside again, no matter what their motives, because saving increases your future opportunities, giving you more choice, more security, and more flexibility.” Mancl’s advice is founded on bedrock principles of personal finance. But while many experts say that only renewed consumer spending will revitalize the troubled economy, consumer confusion is justified from conflicting messages. Here’s how the Credit Union National Association’s Center for Personal Finance resolves the apparent contradiction:
* Saving is a survival skill. Families with no financial reserves cannot respond to emergencies or take advantage of opportunities. They have no margin for error if job loss or illness reduces household income. At a minimum, you should build a liquid emergency fund equal to at least six months’ expenses. You also should save for periodic predictable expenses such as insurance payments. Finally, you should save for big goals such as education, housing, and transportation. * Saving cuts the cost of credit. Borrowing for big-ticket items is a necessity of modern life. But the bigger the down payment you amass before you buy, the smaller your loan, your monthly payment, and your total financing cost. * There are safe, productive ways to invest your savings. Deposit insurance from the federal government’s National Credit Union Administration insures money in credit union deposit accounts up to $250,000 or more, depending on how it’s distributed. Diligent investors can find other investments that are increasing in value, even in today’s market. * There are productive ways to spend. If you have adequate reserves, a secure source of income, and a budget, there’s nothing wrong with going shopping. Eager retailers are now offering ample discounts, and smart consumers are seizing the day.
For more information, read “Tough Times Series: Gen X: Ditch Your Debt and Become Smart Savers” in Home & Family Finance Resource Center