Thursday, March 12, 2009

Hunkering Down In Recession: A Return To Thrift?

Here is a recent article I found interesting:

Here's a puzzle. But not a very enjoyable one. Americans need to save more. They also need to spend more because no recovery can take place with consumers on the sidelines. That's the nub of one of the many challenges facing the battered, reeling economy. For some 20 years, Americans said no thanks to thrift. We consumed at a prodigious rate — big houses, powerful vehicles, enticing electronics, and convenient, frequent travel — all made affordable (or at least that's how it seemed) by low interest rates, easy access to credit and fast-rising home equity that we used as an irresistible piggy bank. At the same time, we deposited less and less of our income into real savings accounts. For decades until the early 1990s, personal savings — after-tax income minus expenditures — averaged in the neighborhood of 9 percent. That's when our collective bender kicked in. Socking cash away for a rainy day became an afterthought. In 2005, at the height of the real estate boom, the personal savings rate dipped into negative territory. Clearly that was not sustainable.

I think the economy has everyone including myself trying to figure out how to save more while not completely stop spending. I am focusing on basic savings goals, like increasing my emergency fund but I wonder how much money would really make me feel comfortable? One month of living expenses? 6 months? 12 months? It just doesn't seem like enough...


paranoidasteroid said...

I hate this, "Americans need to spend more to save the economy!" thing that the media is obsessed with lately. There is no paradox of thrift, because for the first time in who knows how long, people will be buying the things that matter to them. The industry is going to have to adapt and stop churning out crappy products. Ultimately that will be better for everyone!