Why Saving More is Good News and Bad News

Has the recession turned you into a saver?  You’re not alone.  According to government statistics, the average American is now saving about five percent of his or her income—quite an improvement from the negative savings rate of just five years ago.  However, as was noted on CNBC recently, an increase in the personal savings rate is bad for the economy since it means lower retail sales.

This is the tension we live with in our consumer culture.  On the front page of the morning paper we read the comments of economists who express alarm that we’re saving more.  But flip back a few pages and you’ll find personal finance columnists talking about how great it is that we’re saving more.

During boom times, anyone who suggested that we start saving more was quickly run out of town with dire warnings that doing so would send the country into a recession.  But now that we’ve been through a recession and have started saving more, I have a radical idea.  How about if from now on we buy stuff with money we’ve saved?  I know, it’s a crazy thought.  Perhaps even un-American.  But if I were a betting man, I’d bet that a save-and-buy economy will be stronger in the long haul than one in which we buy on credit and live in fear about how we’ll pay for our later years.

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