I just read an article from Forbes titled “The Savings Bugbear” in which Stephane Fitch describes how economic doomsayers insist the increase in consumer savings may spoil the economic recovery. The article talks about consumers putting away their credit cards and saving instead. Last year Americans saved virtually nothing, and now Americans are saving 4% of their income. Doom-and-gloom folks like Nouriel Roubini’s RGE Monitor project an increase of the savings rate to 10%. RGE analyst Arpitha Bykere laments that “We’ll move from an economy that consumes to one that saves”. Oh no! (dripping with sarcasm)
In short, Americans are becoming more fiscally responsible. We are choosing to spend less on unnecessary items, borrow less on credit cards and save more so that we can make needed purchases with cash and weather rainy days. This is not a bad thing. These are the same fundamental financial principles we have all been taught and that we all would teach our children. The wise man builds his financial house upon the rock of savings and frugal spending.
This frugal/savings mentality might slow an economic recovery. However, it would build the economic recovery on a much more solid foundation, and give that economic recovery a greater chance at long-term sustainability. I would much rather have an economic recovery built on solid financial principles that takes longer to achieve than a quick economic recovery based on debt-fueled consumption that everyone knows can’t last. We’ve had 11 recessions since World Ward II. Maybe it’s time we should learn from this recession and make the correct long-term financial decisions that will stop this unnecessary recessionary pattern.