Have the citizens of our great country all of a sudden become better savers? The third paragraph of this week’s Weekly Market Review suggests that we have improved our ability to save our money.
There isn’t much joy in being a skeptic, but I feel like I’ve seen this movie before back during the recession of 2008. During the 2008 recession, many Americans were facing uncertainty with their finances and jobs, so they buckled down and started saving for the “what if” scenarios. Fast forward to the last year, and again, Americans were faced with many financial and employment uncertainties. Couple those uncertainties with $5.6 trillion of stimulus provided from the government and it makes sense that savings and money market accounts of Americans would contain higher balances today vs. a year ago.
The bigger and better question remains – As fears related to the pandemic subside, will Americans continue to save and to hang onto these already saved monies, or will we rush out and spend like drunken sailors when we all feel more confident in our financial futures? This CHART, courtesy of Statista, suggest that our savings rate is coming back down almost as quickly as it went up a year ago. According to Statista, from 1960 to 2019 the average savings rate in American was 7.6%. For some, 7.6% sounds like a lot compared to where they are at, but for most it is not nearly enough. Most Certified Financial Planners like myself suggest a savings and/or investment rate of 15% of income.
Don’t get me wrong, I’m ready to enjoy life a bit more like we did pre-pandemic, but the stats prove that we can save more of our money when we feel like we must. As a financial planner, who often sees people not on track to achieve a comfortable retirement or eventual financial independence, I so wish we could improve our savings rate. Having adequate savings makes life so much easier when the unexpected happens. No more allowing Visa or MasterCard to take 15% or 20% of your hard earned money just to get tires on the car or replace the fridge when it fails. Once the emergency account is adequately funded, then you can start applying those saved monies to building your investment portfolio. You work hard for your money, but what an achievement to let your money work hard for you too!
Our team specializes in helping improve your ability to save more money. Let us know if you need a little help.
Switching gears - Why is the stock market rallying in 2021? The short answer can be found in Notable Number 3. When earnings of publicly traded companies go up, the stock prices generally follow suit.
As always, we hope you find the Weekly Market Review both informative and interesting. Have a great week!
Trevor N. Coe, CFP®