Monday, February 2, 2009

Americans' saving more, spending less

According to a recent AP article:

Americans are hunkering down and saving more. For a recession-battered economy, it couldn't be happening at a worse time.

Economists call it the "paradox of thrift." What's good for individuals — spending less, saving more — is bad for the economy when everyone does it.

On Friday, the government reported Americans' savings rate, as a percentage of after-tax incomes, rose to 2.9 percent in the last three months of 2008. That's up sharply from 1.2 percent in the third quarter and less than 1 percent a year ago.

Like a teeter-totter, when the savings rate rises, spending falls. The latter accounts for about 70 percent of economic activity. When consumers refuse to spend, companies cut back, layoffs rise, people pinch pennies even more and the recession deepens.

This economy has definitely made me anxious to build up my emergency fund because as it stands now, it wouldn't last me very long. I am also trying to pay off my credit card debt as soon as possible. These are things that I would do regardless of the economy but I know I'm not the only one out there who is hoping for the best, but preparing for the worst. Coming up with alternate streams of income has also been on my mind alot these days. It's just hard to carve out time to work on things like that. Man, I could get so much more done if I didn't require sleep :- )