Personal Savings Fall to Lowest Levels Since the 1930s

by Justin Weinger on February 7, 2007

In what could ultimately end up being terrible news for both those who are trying to save for retirement as well as the American economy in general, the personal savings rate was negative during 2006 and dropped to a 74 year low.

During 2006 the personal savings rate for Americans fell to negative 1% – the second year in a row the savings rate was negative.  The last time the personal savings rate was this low was when the rate dropped to negative 1.5% during 1933 - when the United States was midst of The Great Depression.

So what does this really mean?  Essentially it means that Americans spent more money than they earned during 2006.  For every $1 that Americans earned during the year, they ended up spending $1.01.

74 years ago, when the personal savings rate was at negative 1.5%, the United States was in the fourth year of The Great Depression – the worst economic period in the country’s history – when people had to borrow money to pay for life’s essentials.

Obviously today’s economic climate is vastly different, which is why this drop in savings rate is so perplexing.  Considering unemployment is low, the economy is growing and investments are doing well, it would seem that personal savings should be increasing, not decreasing.

That being said, saving money is definitely very important and any steps you can take to make sure you do so – whether it’s clip coupons, analyze your expenses, or practice some self restraint – are critically important.

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