Monday, November 07, 2011

The Paradox of Thrift

In the past 12 months, three out of four Americans have started to save more or spend less, according to an AARP survey of a nationally representative sample of people aged 18 or older. This financial about-face is occurring in every age group.

What is the driving force behind the penny-pinching? To have money for emergencies, according to the survey's findings. The 65 percent majority of respondents said that having more money for emergencies was the major reason for saving more or spending less.

Social scientists have long known that economic uncertainty leads to more savings. In fact, the primary reason for the decline in the nation's savings rate over the past few decades has been the greater security felt by older Americans (typically the nation's biggest savers) after the introduction of the Medicare program in the 1960s and the indexing of Social Security to inflation in 1973. With economic insecurity sky high and rising, it's no wonder Americans are trying to save more. Unfortunately, more savings means less spending, hurting businesses and creating more economic uncertainty.

Source: AARP Bulletin Survey on Consumer Saving and Debt

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