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Savings drive highlights slump

By Claes Bell · Bankrate.com
Tuesday, February 22, 2011
Posted: 6 pm ET

What are you planning on doing with that change in your pocket? If you're about to spend it on vending machine food or just lose it in your couch cushions, the Independent Community Bankers of America would like to have a word with you.

That's because it's America Saves Week, a week-long push by the ICBA and a host of employers and organizations to get you to jumpstart your savings, even if it's just with the $15 billion Americans hold in loose change, according to the U.S. Treasury. From the press release:

"Saving is key to financial stability and independence," said Jim MacPhee, ICBA chairman and CEO of Kalamazoo County State Bank in Schoolcraft, Mich. "Studies show most Americans have too much debt and not enough savings. The recent economic crisis demonstrated just how important it is to have a cushion to help you weather the unexpected. Now more than ever, people need to develop good saving habits."

Of course, banks also derive benefit from people increasing their savings, because they can then turn those deposits toward business and consumer lending, where they can make a substantial spread over what they're paying you in interest.

But the point that Americans should save more is especially worth making right now, because after setting multiyear highs during the worst of the recession, the national savings rate is falling again. After briefly rising to 7.2 percent in the second quarter of 2009, the savings rate in the fourth quarter of 2010 was just 5.4 percent, according to the Bureau of Economic Analysis.

It may seem crazy that people would go back to neglecting their savings even as the economy recovers from a recession in which many people suffered serious consequences from having excessive debt and inadequate cash reserves, but it's actually the norm. Looking at a BEA chart like this one, it's easy to watch the savings rate rise as households panic in the recession, then fall as households feel more secure in the recovery.

People would be wealthier and more secure, and the U.S. economy would be better off, if people did the opposite: saving when times were good and spending those savings to insulate themselves from economic shocks when times were bad. Even after several years of saving more than in years past, people are really unprepared for a future economic downturn. Only 52 percent of Americans said they have more money in emergency funds than they do in credit card debt in Bankrate's latest Financial Security Index poll.

What do you think? Do you find yourself saving during recessions and spending during booms? Do you think low returns on savings are discouraging people from putting money away?

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