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By Adam Hardy
November 3, 2021
Photo of a piggy bank in top view, the slit is a downward arrow
Money; Getty Images

Consumers are saving at the lowest rate since the pandemic ravaged the economy last year — and some experts say that's a good thing.

New numbers from the Bureau of Economic Analysis (BEA) show the personal savings rate for September was 7.5%, which is a 22.3-percentage-point plummet from an all-time high in April, 2020. September’s rate is also a notable dip from the previous month, which was 9.2%.

On its face, a free-falling savings rate sounds bad. But experts say this is actually good news for the economy.

“It’s truly indicative that things are normalizing,” Maria Solovieva, an economist and CFA at TD Economics, says.

Solovieva says this drop in savings is largely due to the expiration of pandemic unemployment benefits, which sunset in September, as well as strong spending from consumers despite the delta variant of the coronavirus.

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The shrinking savings rate indicates that folks now have more places to spend their money, in contrast to earlier in the pandemic, when non-essential businesses had to shutter. Then, most people were stuck at home. They could buy some goods online, but they couldn’t go out to spend their money on food, entertainment and other services like they used to.

There were only so many washing machines, cars or remote-office supplies people could buy, Solovieva says. Such restrictions on how people could spend money — paired with stimulus checks and other benefits — caused the personal savings rate to soar.

So what is the personal savings rate, exactly? Take it straight from the BEA: “The U.S. personal saving rate is personal saving as a percentage of disposable personal income,” according to the BEA. “In other words, it's the percentage of people's incomes left after they pay taxes and spend money.”

And that calculation includes all sources of income: cash gifts, government benefits — any and all money coming in.

Back to ‘normal’ personal savings rate?

It’s difficult to put a hard number on a “normal” or “healthy” personal savings rate, Solovieva says. It all depends on the context of the time.

What we do know for sure: There really is such a thing as too much savings.

That 33.8% figure from April 2020? Way too high. The only remotely comparable period was during World War II, when the government rationed goods, repurposed assembly lines to produce tanks and guns and encouraged everyday folks to save their money.

Even then, in the midst of largest war in history, the personal savings peaked at 27.9% in 1944. For those keeping track, that’s a whopping 5.9 percentage points lower than the record-high reached earlier in the pandemic.

In terms of an individual budget, saving a third of your income sounds great (financial advisors say you should aim to save 15% of your salary for retirement, including any company 401(k) match). But on a macro level, it has a cascading effect: When consumers are saving at such a high rate, that means they’re not spending. A lack of spending means a lack of income for businesses. Then those businesses have to shutter, and people lose jobs. So it goes.

“That brings down the whole economy,” Solovieva says.

Contextually, the current savings rate of 7.5% shows consumers are back to saving at precisely pre-pandemic levels. That's coincidentally the average savings rate over the past 10 years before the pandemic, Solovieva says. And that's a healthy level, from a macroeconomic perspective.

In the coming months, she expects a strong holiday season in terms of consumer spending. According to her research at TD Economics, consumers stockpiled an estimated $2.7 trillion over the course of the pandemic, and a least some of that money is going to be spent over the holidays.

So don’t be alarmed if the savings rate dips modestly during the winter.

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