Tuesday, March 12, 2013

Are We Becoming a Nation of Savers?... Young Are Saving More Than Oldsters Did

There's good news from the younger among us. They're saving much more money and much sooner than recent generations did.

Of course, with all the unfunded liabilities that exist as well as actual debt obligations that we're 'bequeathing' to them, or better said, saddling them with, they'll need to live differently that we have and tighten their belts. Somebody has to pay the bills we've run up, and it looks like we oldsters are not inclined to do so.

That's shame on us, but by our irresponsible example of financial mismanagement maybe we're at least teaching those that follow something worthwhile. To do as we say and not as we do.

And here's the valuable lesson to be learned. Live within your means today and recognize that saving for tomorrow is important to your future peace of mind and comfort as well. And perhaps most important, don't depend on today's government officials to take care of your oldster financial needs. They're afflicted with today-itis, just like we oldsters were.

So who says we oldsters and the government knows best gang can't teach the young anything? Admittedly it's a painful and experience based lesson that we're teaching them, but at least one good thing seems to be coming from it. What prior generations learned from the Great Depression years appears to be repeating itself. If so, that's a good thing.

Young Adults' About-Face on Saving has the good news:

"When it comes to saving, no age-group has experienced a bigger change of heart than young adults.
Measures of saving rates among young adults under 35 show they’re suddenly saving a whole lot more. According to Moody’s Analytics, one measure, the four-quarter moving average of the saving rate of young adults — which smoothes out volatility — started dropping in the late 1990s and hit roughly -15% in 2006 — before climbing higher during the 2008 global financial crisis and its economic aftermath to over 5%. It’s now around 2% or 3%, as of the third quarter of 2012.

No other age group has seen so violent a turn from borrowing to saving. (See related article.) Sure, people between 35 and 44 also increased saving during the recession, but their about-face wasn’t as dramatic. Young people now save roughly as much as people 35 to 44 — and nearly as much as those between 45 and 54.

The trend suggests the recession may have made some young people more “risk averse,” economists’ jargon for less willing to take risks by, say, borrowing. It’s likely that many young people are having a harder time getting credit, especially those with super- high student-loan burdens. But young adults are also seeing their incomes fall, and generally make less money than older people. So they may now — post financial crisis and recession — find themselves less able to service debt. That, in turn, may reduce their demand for credit.

“Younger households were significantly dis-saving — aggressively borrowing — prior to the recession, but they are now saving at a healthy rate,” said Mark Zandi, economist at Moody’s Analytics.

“I think this clearly shows a significant increase in the risk aversion of younger households given the economic nightmare of the downturn and weak recovery,” he adds. “It is unclear how long this heightened risk aversion will last, but I suspect the last few years will have an indelible impact on how younger households think about their finances.”"

Summing Up

This is definitely good news. Living within our means and saving for the future aren't 'nice-to-haves.' They're necessities.

We became a nation of big and reckless spenders during the  past few decades, and it's a bad habit that has to come to an end someday. So why not now?

The younger among us have evidently learned well from our painful experience.

As a result, we can look forward to a brighter and financially secure America as we stop spending money we don't have.

That new-old habit of thrift will in turn allow us to properly save and invest in America's future prosperity and not needlessly burden future generations with the debt we leave for them to repay.

Shame on us.

That's my take.

Thanks. Bob.

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