Americans Lose Their “Security Blankets” As Inflation Tightens Death Grip
(USNewsMag.com) – Inflation has been an ongoing issue for the last year. Initially, experts said it would level out in a few months as the economy rebounded from the pandemic, but it’s becoming increasingly evident inflation is sticking around for the foreseeable future. In fact, prices are up everywhere, from grocery stores to gas pumps, and it’s hitting Americans and their savings accounts hard. Because of the elevated prices across the board, people are saving much less than they used to, and that’s a problem.
Personal Saving Rate Declines
For most of the past decade, before the COVID-19 pandemic, the personal saving rate — the amount people earmarked for their savings accounts — remained steadily in the 7% to 9% range. However, it’s since declined, especially in 2022. According to the US Bureau of Economic Analysis, every month this year, the personal saving rate has been under 6%, meaning Americans are saving far less than they did in years past.
However, according to Mark Zandi, Moody’s Analytics chief economist, because they were able to save more money during the pandemic at rates between 10% to 30%, likely due to restrictions and stimulus money, “most households have a cash cushion” that’s helping them weather the storm. Still, it doesn’t mean people are comfortable. High prices at the pump and for nearly every commodity are causing savings to deplete faster, and people need to be savvy about how they spend their money. Less spending means less money going into the economy.
Will This Lead to a Recession?
Experts caution that reduced spending could potentially affect the economy’s trajectory. After all, less money going into the economy means a slowdown; if it slows down enough, it could lead to a recession. However, at this point, it’s merely a warning, not a given. But, it’s something to keep an eye on because, during the first quarter of 2022, the economy shrank 1.5%, and the Federal Reserve Bank of Atlanta estimated it also shrank 2.1% during the second quarter, an increase over the first. A recession could occur if the downward trend continues.
What Americans Can Do
While things might be tight, it’s still possible to save money, just be on a smaller scale. Some may reduce extra spending until inflation levels out, while others may delay bigger purchases until interest rates come down. Additionally, people should continue contributing to retirement savings because while the market has experienced struggles, it always rebounds. Retirement accounts will generally recover with the market.
How has the increasing inflation affected your saving habits?
Copyright 2022, USNewsMag.com