The Great Recession and Household Savings
The Great Recession had a much larger impact on household wealth than any other post-war recession. People and regions that suffered job losses, reduced compensation, and a decline in asset value suffered a disproportionate decrease in wealth which is likely to impact consumption, savings, and retirement decisions many years into the future.
The U.S. household saving rate was at historically low levels from 2005 through 2007 – households saved only between one and two percent of their disposable income. As the crisis began, households cut spending and the saving rate shot up to about six percent within a year. During recessions or other periods of economic weakness, when any engine of growth is needed, an increase in the household saving rate could slow the pace of recovery because, by definition, when a household saves more it consumes less. So what will happen to the saving rate in this critical recovery period?