Why American Savings Are Dwindling At An Alarming Rate
As the holiday season is in full swing, more people are taking money out of their savings to purchase gifts and holiday goodies. Even though inflation is still running rampant, Americans are not willing to give up their potentially damaging holiday spending habits. Holiday spending is off to some of the highest spending numbers in the past few years.
Savings must not have been a thought in many people’s heads as deals rolled out for Black Friday and Cyber Monday. Consumers all across America could not resist the sales, and spending persisted. In the next few months, this could cause an adverse reaction to the economy, which depends on consumer spending.
As spending for the holiday season has ramped up, savings for many American has taken a hit. In the next few months, spending will likely slow as many put their money toward payoff debts incurred or towards rebuilding their savings. Experts are calling this a sort of holiday hangover.
As high inflation is combined with this debt incurred and a minimal savings account, many Americans could really feel the pressure in the coming months. The amount of money people were saving before the holiday season hit was already a low amount, especially compared to how much people were saving during the peak of the pandemic.
During the covid-19 pandemic, many Americans had record-high savings. Between the rollout of the stimulus package and the fact that many were no longer commuting to work, savings were high. This provided a much-needed financial cushion for most people.
Since then, inflation and the overall cost of living have reached all-time highs. This has caused the cushion of saving that so many people had built up to dwindle quickly. These factors, combined with holiday shopping, have left many with practically nothing left as far as savings.
Another contributing factor to such low savings among Americans is the fact that hardly any employee has received a raise amidst the cost of inflation. This essentially equals a pay cut. Any income that was once disposable and able to be put into savings is now needed to pay for many essentials like rent, mortgage, groceries, electricity, and water.
If the economy gets hit with reduced spending in the next few months, a recession could come into effect. Whether or now the recession is mild or more severe just depends on where Americans are with spending. In addition to dwindling savings, Americans seem to be pulling from their company-backed retirement accounts.
This alarming trend goes to show how hard inflation is hitting and how little people have to fall back on. The middle and working-class Americans are being hit the hardest during this tough economic time. Savings peaked at around $2.3 trillion in 2021 and has since dwindled to around $1.7 trillion.
Between holiday savings, high inflation, and no increase in pay, savings have quickly been spent. As the holiday’s come to a close and the new year begins, we will see exactly what will come. Hopefully, Americans will continue to persevere and learn from the past in regard to money management.
