The Recession has taught Americans many hard financial lessons, key among them the virtues of saving more and borrowing less. With these lessons fresh in mind, Americans entered the economic recovery a more frugal group, but emerging economic trends seem to be undermining their ability to save.
“The Recession isn’t over for most Americans,” said Catherine McBreen, managing director of Spectrem Group, a market research firm specializing in affluent investors. “Modest increases in income fail to keep pace with rising costs for food and fuel. That leaves most investors struggling to meet their savings goals.”
Americans began saving more in the wake of the recession, and personal savings rates reached a post recession high of 6.4 percent in June 2009. Rates have fallen since and have remained at 5.5 percent for the past two months, according to the latest figures from the U.S. Bureau of Economic Analysis.
Rising gas prices, coupled with an increase in the cost of food, have handicapped savings plans. Disposable personal income rose 0.6 percent in March, but higher prices eroded gains and resulted in an increase of 0.1 percent in real disposable income, according to BEA data released Friday. Similar trends cut into income gains for February.
Meanwhile consumer debt, which declined through 2009 and the first nine months of 2010, has been rising, according to the latest data from the U.S. Department of Commerce. Debt levels rose 3.8 percent from January to February, though car loans accounted for much of the increase. Consumers continued to use their credit cards less, a decline that began in 2009. The rate of decline has slowed – and actually increased with holiday spending for the month of December – but credit card debt stood at $794 billion in February, compared to $957.5 billion at the end of 2008.
Consumer confidence remains near recession levels despite the sustained stock market rally and slowly improving job market. Even affluent investors remain sobered by the Recession. Twenty percent of millionaires surveyed by Spectrem Group in December said the Recession prompted them to reduce their debt levels, while one-third of investors with less than $1 million have cut their debt and nearly 30 percent have increased their savings. The non-millionaires plan to continue to reduce their debt in 2011 with 43 percent planning to cut their debt by up to 25 percent, and 29 percent planning to cut their debt by up to 50 percent. Ten percent plan to completely reduce their debt.