The dangerous thing about advocating more saving and less spending, a responsible approach to personal finances, is that when the public applies this approach, the economy doesn’t move forward.
The Commerce Department released consumer data from June today showing that personal spending dropped 0.2% during that month, the biggest decline since September 2009. It took even the expert analysts by surprise, as on the whole, they were expecting an increase in spending. The savings rate (measuring savings as a percentage of income) jumped from 5.0% to 5.4% in June.
While savings has increased, banks are still getting away with offering low interest rates. For savers, who would have done better to save when rates were high and, in some cases, spend when rates are low, are taking the opposite approach. This is a saver’s dilemma, but it isn’t the only problem.
The rate of unemployment is still high. Businesses won’t hire more employees right now because:
- employers are getting by, doing more with less;
- employers are not convinced the economy is recovering; and,
- employers won’t hire until their customers spend more on their products.
This isn’t true for every employer, though. My friend owns an audio-visual event production and installation business, and he’s having trouble finding a qualified salesperson to add to his team. Regardless of this fruitless search, until consumers start shifting their financial attitude towards spending and away from saving, employers will keep functioning with the resources they have. The public, though, won’t spend more until they have jobs or feel more secure in their employment.
Updated March 24, 2017 and originally published August 2, 2011.