Home / Blog / Are Americans Saving Too Much?

Are Americans Saving Too Much?

While the economy has pretty much recovered from the economic scare of 2008, it doesn’t appear as if Americans have yet. In recent years, over 700,000 new jobs have entered the workforce, but have Americans begun spending that hard-earned money they are making? No, not yet, and it’s hard to tell when they will start.

The job market is good, gas is cheap, but Americans aren’t spending money. In fact, the latest data from the Commerce Department indicates that people in the U.S. spent less in April than they did in March. It appears as if individuals across the United States are hesitant to purchase much in stores or anywhere else. As a whole, consumer spending has been somewhat dismal in 2015, with March being the only month during which there has been a month-over month increase.

Statistics show that retail sales alone are the worst they have been since October 2009, and the bad weather of just a few months ago can no longer be blamed. So where is all that new money going?

The Current Economic Trend - Saving vs. Spending?

It appears as if the most recent economic upheaval has since bred a generation of savers. Instead of spending, Americans have begun saving. In fact, the annual savings rate is now almost 6 percent higher than it was even just a year ago, which is almost two times the rate prior to the recession, according to the Federal Reserve.

So what’s the problem with Americans not spending? The economy is still hurting. Americans alone make up roughly 70 percent of the economic activity in the country. With Americans not spending, the economy isn’t doing much growing.

Researchers and financial professionals expected the savings rate to spike following the recession. That’s natural as people were afraid of their economic future. However, economists expected the savings rate to eventually fall back to the pre-recession rates, and they have yet to do so.

Related Article: How to Save Money this Summer

Is An Economic Turnaround a Possibility?

Is there an end in sight? To the inflated savings trend, that is. Maybe, and maybe not. Economists expected to see an increase in spending as of this spring with people having more jobs and gas prices being lower. But the spending increase hasn’t happened yet, indicating that Americans still aren’t comfortable spending their hard-earned money in today’s economy.

The lack of spending also suggests that the majority of Americans aren’t confident that this recovery from the most recent recession will last. In reality, people don’t spend if they sense a problem looming overhead.

Is Saving Too Much Really the Big Issue?

So, are Americans really saving too much? That’s a tough question to answer.

When the numbers on retirement savings are assessed, it reveals that the U.S. is in the midst of a retirement savings crisis. The most recent data suggests that the difference between what Americans have saved versus what they will need in retirement is a number as large as $6.6 trillion, as reported by the Center for Retirement Research at Boston College. Likewise, just under 60 percent of workers are saving nothing while roughly 57 percent have less than $25,000 in total savings and investments.

If the statistics are assessed on an individual basis, though, the numbers tell a bit of a different story. On an individual basis, it appears as if a significant percentage of individuals are putting away more than they may actually need. Many economic scholars believe that the suggested 75 percent of pre-retirement income overstate an individual’s retirement needs. Likewise, it’s possible that online calculators and other retirement investment calculations lead individuals to save more than they will need in later stages of life.

In all reality, replacement income for after retirement may be as low as 35 percent of one’s former salary, considering that an individual has paid off the mortgage, no longer has childcare and employment costs, and does not have a further need to save. It would do many individuals well to reevaluate their savings plans to begin saving at a slightly more modest rate.

Related Article: When Should You Make That Big Purchase?

What Do the Economic Indicators Suggest?

In any case, economists are keeping a finger on the pulse of the economy. According to the ISM, a key manufacturing measure, there has been some slight improvement. However, that increase is more consistent with a 2 percent economic growth compared to the 2.5 or 3 percent that would be best for the economy at this point.

Consumers and economic analysts alike will get another look at one of the most important economic factors as early as Friday with the Labor Department’s release of the number of jobs added to the workforce in May. Hiring actually declined in May, so it would do the economy well if there were a strong pickup through the spring.

One of the factors influencing the economy the most right now, though, is wage growth. While job outlook has been good and gas prices have been low in recent months, wage increases have been almost nonexistent, likely one of the key ingredients to the steady hold of the savings rate. Aside from a focus on saving to be prepared for the unexpected, the lack of wage growth is another factor motivating Americans to hang on to their money. If consumers don’t feel confident with the current state of their household finances, they are unlikely to spend any additional money.

Could Over-Saving Now Be Good for the Future Economy?

So, what happens if the increase in savings holds up? According to a recent report in the Oxford Economics notes, savings is a good source of investment that can support the economy’s long-term growth. Essentially, saving now creates a catalyst for economic growth down the road.

However, the main problem is that the U.S. economy is still functioning below capacity. Many economists would actually prefer to see consumers pulling back on savings until the economy experiences a full recovery and begins growing at its full potential.

While there are many signs that the economy is in a stage of growth, there are just as many indicators that relate that the economy is holding on to its dismal past. Time will only tell if Americans’ excessive saving is truly hurting or helping the economic environment of today.

When it comes down to it, the answer to whether Americans are saving too much, is yes, in some ways. However, it stands to reason, too, that as a whole the U.S. economy is undersaved, which is a key contributor to the most recent economic issues.

Blog Tags: 

Sign up for our monthly newsletter.

Get the latest tips & advice from our team of 30+ credit & money experts, delivered to you via email each month. sign up Now

Alice Bryant's picture

Alice Bryant is the Editor of Creditnet and a personal finance expert with over a decade of experience writing about credit cards, credit scores, debt repair, and more.

Visit 's Google Plus profile for more.