Spending money with abandon might not be suitable for your wallet, but it makes the national economic data look good. Conversely, saving is prudent, but it can put a drag on GDP numbers in the short term.
It turns out Americans are saving more, which has some observers worried. The U.S. personal savings rate — which is a simple subtraction equation of income minus spending — was 8.1%, the St. Louis Federal Reserve reported. In 1996, the savings rate was 5.7%.
That’s good, right? Not according to Raymond James analyst Tavis McCourt, who writes that increased savings have a “disinflationary impact, driving the relatively slow growth and low inflation in this recovery.”
Whom should we blame? Millennials, of course.
Millennials are playing it safe and putting more money into their savings accounts, McCourt noted. “The U.S. consumer has had enough, so they are saving instead of purchasing like the last generation,” he said.
This trend confirms what we already know: Young adults are spending less than their parents and grandparents for several reasons. Millennials earn less than their predecessors, and the money they do have disproportionately ends up in the bank.
In 2014, investment banking company UBS reported that millennials were the most financially conservative generation since the Great Depression. And a recent Morning Consult survey found that 69% of millennials had a savings account.
Perhaps young adults learned from the 2008 recession, as McCourt suggested. And who can blame them? They watched their parents lose their jobs, foreclose on their homes, and live paycheck to paycheck. Now they’re doing what they can to prevent that from happening again.
Want to see the lasting impact of the Great Recession? It shows up in the savings rates of today’s young adults.
