Yesterday I decided that my leftover taco fixings will be born again as a nice hearty chili. Oh was it good. The only bad part was when I thoughtlessly rubbed my eye with my jalapeno covered left hand and it started burning my eye socket out. I jumped out of my chair wondering what the heck to do as I was convinced I was doing permanent damage to my cornea. I finally soaked a clean paper towel with water and scrubbed my eye hoping for relief. It helped a little but my eye was still stinking and I couldn’t open it fully. What did I do next? Well, I thought rubbing it might sooth it a little and instinctively rubbed it with the same tainted hand. I thought to myself OUCH and WOW ARE YOU STUPID for not learning and I had to go through the agony all over again.
Then when I drove my kids to school, an interesting article came on NPR. The commentator stated that although unemployment rates are still at the place where they were a year ago, people are spending a lot more on Christmas this year. The reporter’s opinion was that people are just going through frugal burnout and are starting to open up the purse strings again. I have at least one other theory that reminded me of a post I wrote a few months back called Paying Off Debt Helps the Economy.
Perhaps it’s not that consumers are just going back to their crazy spendy ways. The eternal optimist in me thinks that maybe consumers have spent the last year or two getting things in order, paying down debt and building emergency funds. Maybe they are just now in a position to spend freely again. Also, if you have the cash in the bank to buy the latest gadget, I imagine it must more of a guiltless transaction. If you are meeting your savings goals and have the cash laying around to spend on your dearest family members, why not finally reward yourself for a job well done?
Personal Savings Rate History
In case you’re interested, Free by 50 Plotted the Personal Savings Rates from the 50’s to 2010 and has links to where the federal government has the raw data. As of October the Savings Rate is hovering at about 5.7%. It hovered in the low 2%’s right before the crash in late 2007 and was as high as 14% in the 70’s.
I wanted to look at the data in a different way and plot it year by year during this recession. I honestly I didn’t know what the data would tell me until I plotted it. Here’s my interpretation of the chart. In 2007, people were happily trucking along saving next to nothing because jobs were booming, headhunters were calling and the future looked bright. Then in 2008, all hell broke loose. People felt out of control. They were all over the place trying to figure out the right amount to save during this downturn. They bobbed up and down for almost a year and a half and just in case, they also saved most of their tax returns too. By the end of 2009, people were starting to figure out that 5-6% felt like the right amount of buffer to save for their families. By 2010, consumers started to feel comfortable again. It even looks like people started spending their tax returns this year. They now feel they can go back to spending because they’ve achieved a new level of financial homeostasis.
So now that you’ve seen the data, which scenario do you think it is? Have people finally found the right balance between spending and saving? Or are they like me and don’t learn from their mistakes? Are they about to burn their financial eyeballs out twice in a row and rack up that credit card again? I guess I’ll have my answer at the end of first quarter when the savings rates are plotted by the fed.
Thoughts to what is happening here? I would love to hear your interpretation of the data.