almost 4 years ago • 2 mins
Low savings left many financially unprepared for the present crisis. Now, however, there are concerns that increased future thrift could hinder the broader economic bounceback… 😟
With most Americans lacking sufficient savings to cover three months of expenses, the loss of millions of jobs has left many dependent on government support. Even then, inability to meet financial commitments like rent is amplifying the economic damage of the coronavirus.
Income stagnation left the average inflation-adjusted US household income in 2018 only 3% higher than in 2000. And rising income inequality prior to the last recession saw richer families’ savings helping keep interest rates low while poorer Americans loaded up on debt – with the subsequent repayment burden reducing their ability to save 🏋️♂️
The imminent coronavirus-induced recession may help change things: Cornerstone Macro expects the overall US savings rate to increase to 11%. But that would see $500 billion taken out of the economy – potentially slowing recovery by months or years.
Wider economic growth affects business success and, by extension, your income from paychecks and any investment returns. But the pandemic highlights the crucial importance for personal financial resilience of building an adequate emergency fund through automatic savings transfers. For two adults earning $100,000-150,000, this should take five months: check out Finimize’s thoughts on the matter here 😉
Emergency finds may soon become even more vital. With coronavirus predicted to be the most expensive event in history for the insurance industry, premiums could be headed north.
But the impact of tightened consumer belts is already becoming clearer on the other side of the Atlantic. Official data on Friday showed UK retail sales falling a record 5% between February and March even as food purchases rose, with one Bank of England expert warning coronavirus could be the biggest economic challenge in centuries. Still, savings are unlikely to get as much of a boost as they did in the last great global battle…
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.