Despite Record High, Personal Savings Out of Reach for Many

By Veronica Carrion
ABA Economic Research Associate

Even as local economies struggle to reopen, Americans are saving more than ever. Since March, the personal savings rate (the percentage of people’s incomes left after taxes and money spent) has skyrocketed, hitting an historic 33.6 percent in April, according to the U.S. Bureau of Economic Analysis. While the rate dropped to 14.1 percent in August, it remains well above the 6-8 percent range of the past twenty years. However, not all Americans have been able to save equally.

Why are Americans saving more?

Following the initial shutdown of businesses and restaurants across the country, consumer spending plunged 12.6 percent in April—the same month that savings reached historic highs. High- and low-income households alike cut spending drastically in the first few months of the pandemic, in part because they could not or would not go to stores. Moreover, workers with the ability to telework (which includes 43.6 percent of workers with a bachelor’s degree or higher) found they no longer need to spend as much on commuting, eating out and clothes.

However, consumers are also being more mindful of their spending and saving habits. For instance, one respondent to a recent McKinsey survey of U.S. consumer sentiment, said “I’m really thinking about what I want and need, and I’m reluctant to buy things I don’t really want or need.” In a separate CIT Bank survey, more than half (53 percent) of consumers reported saving more than they typically do in the last 3 months (including 42 percent who are not currently employed), and more than three in four reported they are somewhat or very likely to save more each month going forward.

Who is saving?

The federal $1,200 Economic Impact Payments and $600 per month expanded unemployment insurance payments included in the CARES Act helped many families raise their checking-account balances, manage household expenses, and pay down debt obligations. For some, it also provided padding for savings.

Higher-income households, with more discretionary income have reduced unnecessary expenses and have had less difficulty saving. While they were less likely to receive or expect Economic Impact Payments than low-income households, they were two to three times more likely to place EIPs in savings. High-income households were also more likely to use EIPs to pay down debt, which could facilitate higher savings in the future.

While white-collar workers have not been immune to layoffs and furloughs, low-income households were hit the hardest and still account for the majority of jobs lost. Low-income household spending largely returned to its pre-pandemic levels in June as these consumers used their EIPs and expanded unemployment payments for household expenses (rent or mortgage and utilities), food and supplies.

Why it matters

Historically, Americans have struggled to save money, especially for those with less education as well as who are Black and Hispanic, according to the Federal Reserve’s Survey of Consumer Finances. And according to the Fed’s 2019 Report on the Economic Well-Being of U.S. Households, 37 percent of Americans prior to the pandemic would have struggled to pay for an unexpected $400 expense. The pandemic has many Americans saving more than ever before and may allow some households to better manage debts, plan for major life events and improve overall finances.

However, the flip side of elevated savings is less consumer spending. The money that households spent at restaurants, on travel and on entertainment prior to the pandemic has been severely curtailed. This is directly impeding economic recovery.

Consumer spending has risen slightly over the past months as business gradually reopen. However, 76 percent of Americans who are able to save intend to continue saving and cut back spending until a vaccine is generally available, according to a Franklin Templeton/Gallup study.

Moreover, there are follow-on effects. Many businesses have seen sales plummet and are struggling to recover. The lost spending has especially hurt lower-income workers, particularly those in the service sector, whose jobs and incomes depend on those transactions. The foregone spending from those out of work or otherwise lost earnings is magnifying the drag on the economy.