The personal savings rate — the percentage of disposable income Americans set aside for retirement or savings — fell to a 12-year low of 2.4% in December. Two years earlier the savings rate was at 5% and in December 2012 it stood at 11%, according to data from the Federal Reserve Bank of St. Louis.
This decline in personal savings can be interpreted in a number of ways. On one hand, it suggests that a sizable number of households are dipping into savings to maintain their spending levels
, and that can be a difficult cycle to break when wages are increasing slowly and housing costs continue to climb. Moreover, it means that many households simply don’t have enough money in their bank accounts to meet a sudden, unexpected expense.
Then again, the decline could be a result of more consumers tapping savings to buy homes, cars or other big-ticket items, and all that is a sign of growing confidence in the U.S. economy, according to Dr. Dan Geller, a San Francisco-based economist. Geller uses a metric called the “Money Anxiety Index” to gauge consumer confidence, and he said Friday that, even after Wall Street's wild week, the index is at its lowest level since before the Great Recession. The February index stood at 51.4%. The 50-year average is 70.7%, and during the the height of the recession it peaked at 100.4%, Geller said.
“Increased financial confidence…has fostered a condition where individuals are more confident to decrease the amount they save, or even utilize part of their existing savings, to help fund their consumption,” Geller wrote in a report released Friday. “As long as the economic fundamentals, such as employment, inflation and personal income remain stable, the level of money anxiety will remain low, and people will continue to spend money despite this temporary volatility in the equity market.”