Tuesday, October 21, 2008

Guess Whats in Vogue? Savings

Whether you are just starting on your first serious savings or are an old hat in the art of increasing your cha ching you might be surprises at what the experts are saying about saving money. In a recent article in bloomberg it was reiterated on several occasions the expected savings rate in the United States is expected to grow, and this increase in Americans savings will, are you ready for this, be bad for the economy.

So how bad can it be how can saving more money hurt the economy. It is estimated the American savings rate is currently 3.5% which is considerably behind most Asian and European nations. For example households in Germany on average save as much as 10% of their after tax income. With such a large contrast in the style of savings between nations it is no wonder Americans are feeling so much anxiety over the current economic conditions prevalent in the economy. During the Asian banking crisis of the late 1990's many Japanese households survived the drastic deleveraging downturn by living off of their savings. How much did they save, the average Japanese households saved in excess of 12% of after tax income. For many their savings supplemented their reduced earnings.

The logic on decreased spending exerted by some economists is that if consumers stop spending and start saving then the after effects of this will impact the retailers and their reductions will pass on down the chain through the supplier on down to the manufacture. Before you get on your made in China rant, not all products are made in China. And even for those that are it is often over looked there are many steps in the process to get these products to market. Dock workers, freight companies, truck haulers, distribution centers, retail warehouses, and then ultimately the retail floor. While it is understood this slow down turn can impact retail sales I don't necessarily agree with the subliminal message that increasing your spending is what we should all go out and do.

There is a flip side to the effects of a slow down in retail sales and this is already starting the show in the economic levels here in the United States. We need to accept the fact that a slow down in economic activities in one sector of the economy is going to impact many others. If we own stock in our 401k accounts are we going to be understanding when the companies impacted by the after affects of this slowdown report lower earnings. Are we going to accept a lower rate of return on our investment because we understand why these companies are not able to earn any more than what they report. I would venture to guess you will be on the first bus to pull out of the station, and you will vote with your feet and will sell this stock.

With the American savings rate already at an all time low American households, on a whole, need to find a balance between saving and spending. While many hyper consumers (I was once one of these addicts) will certainly always flourish in our society there is evidence American households may actually make saving money a high priority. Many households may find themselves needing to fall back on their savings. With all the uncertainty surrounding our economy they may need to do this just to get a good nights sleep. The loss of a job, unexpected health expenses, and everyday living expenses will increasingly take their toll on the American household.

As a new era agent provocateur I have made it my mission to educate Americans across this great land or ours that money is to be saved and then invested. There are many ways to increase your savings. If you are new to saving, need a way to reduce your debt, or just need a review of your savings method then read our guide to a weekend drill to increase your savings.

To your health, wealth, and happiness

The information contained in this site is the sole opinion of the Baron Von Savings. The Baron is not a professional money manager, tax expert, accountant, attorney, or stock broker. You should consult with an appropriate professional before making decisions concerning your finances.

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