Money & Finance

Saving has ballooned since the recession hit last year. We’ve gone from saving just 1% of our income, to saving 5%. People just aren’t shopping. Personal spending has been falling for months now, and this is the first time in 60 YEARS that it’s EVER done that. It looks like this trend will continue, even after the recession is over!

According to MSNBC, it’s not unusual for people to start pinching pennies when times are tough. It happened in the great depression, it happened in World War II, and it happened during the recession in the 1980’s. This time, a new study says, people aren’t about to go back to their old ways. Economists are saying this could put our economic recovery on hold!

So, how can saving be BAD for the economy? Well, our economy is driven by people buying things. For example, when you don’t remodel your kitchen that means you’re not buying the appliances, or the cabinets, or hiring a contractor. When a million people don’t remodel their kitchen, that can put an appliance manufacturer or a contractor out of business. Then they have to lay-off their workers, who have to start tightening their belts. Everything in our economy is connected, and it all depends on people spending money, which they just can’t do right now. Millions of people are out of work, and everyone is looking at their 401k and wondering if it’ll EVER be back up to where it was before the recession. This fear is keeping us from spending.

Economists aren’t suggesting that we get out there and spend like it's 2003! Chris Farrell is an economics editor for Business Week magazine. He says the first thing everyone has to do is BE SAFE. Start saving 15% of your income every month and have it automatically taken out of your paycheck. As long as you’re socking away that 15%, and have a cushion built up, Farrell says go ahead and spend. Make sure you’re using cash and NOT credit cards. Studies show we buy spontaneously when we pay with plastic and we end up spending more, which could put us right back where we started!