People are increasingly saving more during the pandemic, but experts say it hurts the economy
People are saving money at more than we have seen in a while, but what could that mean for the economy?
The personal savings rate in March was 13.1% and some experts expect it to go higher, for a variety of reasons – ranging from unemployment to job uncertainty to people just not having the option to leave their home.
But will this health crisis create a new normal when it comes to spending? Only time will tell.
Last month, Sarah Hickey’s financials we’re in rough shape.
She said, “It was scary. I didn’t know how we were going to do it.”
And that scared feeling left a lasting impression. “We weren’t as prepared as we thought we should be,” Hickey added.
Even though things are picking up work-wise for her and her husband, count them among the many who will choose to save instead of spend.
Hickey said, “As they ease up the restrictions on the restaurants maybe, every once in a while will go get some takeout, but I’m not hitting Amazon Prime like I was, that’s for sure.”
Dr. Tom Smythe is a professor of finance at FGCU, and he says while creating a cushion is a good thing, spending pulls our economy out of a recession situation quicker than saving.
Shutting down the country has damaged the economy and that’s part of the reason why we’re seeing stimulus payments, loans, and extended benefits.
“All of that is meant to put money in people’s hands for them to spend,” Smythe explained. “It’s way too early for us to see if a lot of the changes in spending patterns are permanent yet or not. Once things start to open up, will this pent-up demand lead to higher levels of spending then we might’ve seen coming out of the recession? That’s a big topic of debate right now.”
Hickey says for her family, saving is what they’re sticking with – at least for now – saying, “I would love to go to the mall and go spend some money and get some new clothes or do something fun but I don’t want to get caught again like I was before.”
Smythe adds that some people are waiting for a signal of some sort to start spending. But signals are different for everyone, and with this being a health crisis there’s an added level of caution and uncertainty.