…to the surprise of absolutely nobody even remotely in touch with the financial lives of average Americans. The Federal Reserve Bank of St. Louis recently released the September 2021 data point in their series tracking personal savings rates. It reveals that Americans saved on average just 7.5% of their gross income two months ago:
We’re now back on par with savings rates from the pre-pandemic period. Which means that the boom in personal savings during the pandemic period is officially over in the worst kind of way ― it indicates that on average, Americans made no strides to adopt permanent changes to their financial lives or reduce their consumerist ways.
Many people got a taste of what it was like to be cash flush with a massive monthly surplus. Both through government stimulus, but also due to forced spending reductions during lockdowns. The latter was essentially a roadmap for how to maintain at least a portion of that higher savings as the world began to open back up. We were all forced to eat out less, go to less bars, and make less shopping trips (meaning less impulse purchases).
Those spikes in the graph clearly correspond to the direct stimulus checks sent by the government. Perhaps the simplest way to filter out the stimulus and get a rough idea of what portion of the pandemic savings boost was due to forced reductions in spending is to look at the data points between the stimulus checks being spent down. And the most common value or mode of these data points appears to be around 13–14%.
So even if we totally discount the stimulus, the average American nearly doubled what they were saving pre-pandemic simply due to a forced reduction in their consumption. This is actually pretty impressive when you consider that everyone still had the ability to funnel infinite money to online shopping sites like Amazon.
Interestingly this appears to have spurred the largest nominal drop in non-housing debt since The Great Recession. Between Q1 and Q2 in 2020, non-housing debt fell by approximately $80 billion:
However, in context that’s really quite small. Divided among 210 million adults in the US, this corresponds to an average of just $381 in non-housing debt reduction per adult. Truly a minor portion of the excess cash that the average household raked in during the pandemic. One could argue that the cash was intended to be spent on essentials, but I would counter that it was not targeted well enough, and many people (including myself) received it who did not truly need it. In those cases it should have followed the normal order for an unexpected windfall: prioritize debt reduction, then emergency funds, then investing.
It’s apparent from the chart how short-lived this debt reduction mentality was. In fact, we’ve recently powered to an all-time high in total household debt, further indicating that the pandemic spurred absolutely no financial behavior changes in the American population at large. Consumerists heroically loaded up on new debt to do their part in “stimulating the economy” with money that they’ve borrowed from their own futures.
Apparently old habits die hard. I remember reading several articles earlier in the pandemic which claimed that these increases in savings and debt reduction would become the new normal. I thought that would be great, but I also had massive doubts at the time. According to a September 2020 study by CIT, 53% of Americans had reported saving more than they usually did over the prior three months. What’s more, 76% of Americans said they were either very likely or somewhat likely to save more each month in the future. That was from a year ago.
What the hell happened? Not only was the supermajority of ambitious future savers proven to be complete liars, but Americans on average lost all the efforts of those who actually did manage to save more. Is the siren song of consumerism really that strong? Is it truly that difficult for people to eschew a product or service today in favor of saving and investing toward tomorrow?
Obviously everyone is free to make their own decisions. But one has to wonder if the proper financial literacy is even there for each and every person to compare the opportunity cost of spending now versus saving and investing. Education may be at the root of the issue. Schools in the US mostly provide no education on the topic, and those seeking to self-educate have to contend with a massive pile of misinformation on the web that they may not have the tools or experience to recognize.
Overall I’m sad to see that the pandemic did not create lasting positive changes in financial habits for the average American citizen. I’m still hopeful that my small blog can help create positive impacts in this area, even if just for a few people.