Courtesy of Mish.
A pair of conflicting headline stories caught my eye. One headline says Americans have too little savings while the other says we are saving so much that it's a problem. Let's have a look.
Most Americans Have Too Little Savings
MarketWatch reports Most Americans Have Less Than $1,000 in Savings.
Americans are living right on the edge — at least when it comes to financial planning.
Approximately 62% of Americans have less than $1,000 in their savings accounts and 21% don’t even have a savings account, according to a new survey of more than 5,000 adults conducted this month by Google Consumer Survey for personal finance website GOBankingRates.com. “It’s worrisome that such a large percentage of Americans have so little set aside in a savings account,” says Cameron Huddleston, a personal finance analyst for the site. “They likely don’t have cash reserves to cover an emergency and will have to rely on credit, friends and family, or even their retirement accounts to cover unexpected expenses.”
Why Have a Savings Account at All?
I have a question: Why have a savings account at all? Interest is roughly 0% so it effectively makes no difference whether money earns nothing in a "savings" account rather than nothing in a checking account, or nothing in a money market account.
That said, I agree with the overall message: people are not saving enough. Here's a better way of stating the problem, also from the article.
A similar survey of 1,000 adults carried out earlier this year by personal finance site Bankrate.com, which also found that 62% of Americans have no emergency savings for things such as a $1,000 emergency room visit or a $500 car repair. Faced with an emergency, they say they would raise the money by reducing spending elsewhere (26%), borrowing from family and/or friends (16%) or using credit cards (12%). And among those who had savings prior to 2008, 57% said they’d used some or all of their savings in the Great Recession, according to a U.S. Federal Reserve survey of over 4,000 adults released last year. Of course, paltry savings-account rates don’t encourage people to save either.
This is entirely believable. The next headline is pure nonsense.
People Saving Too Much is Now a Problem
Myles Udland writing for Yahoo!Finance reports People weren't supposed to be saving this much money — and now it's a problem
Too much saving means not enough spending means a lack of aggregate demand in the economy, the thinking goes. "Secular stagnation" is another term that might apply.
In a note to clients last week, Deutsche Bank's Binky Chadha looked at the relationship between interest rates and savings rates, finding that — of course — consumers aren't exactly acting the way the economists at the Federal Reserve might expect.
Namely, people are saving money despite low interest rates when many economists expected or hoped these folks would spend that money to buy stuff or put it in assets that actually earn some return.
Keynesian Fallacy…
