Consumer confident is the willingness of consumers to spend their money vs. save their money. Consumer confident has dropped to record lows in the last few months as consumers are saving more and more of their money.
Businesses suffer from a dramatic drop in spending, but the increased savings are also used to provide business loans used to hire employees and purchase capital equipment to improve productivity. The sudden drop in spending also forces weak businesses that are over leveraged with debt to go out of business, which frees up market share for surviving businesses. In the end, some business gain and some loose, and the result is a market of businesses are much stronger than they were before.
Governments also suffer from a dramatic drop in spending because of the drop in tax revenue. But, governments cannot file for bankruptcy – at least not as easily. Cities cannot just go out of business and liquidate assets like water treatment plants, roads, schools and fire stations. Even over consuming governments with high debts have to find a way to continue to operate.
This is why governments are usually the loudest protesters when savings increase, especially large bloated governments with high debt payments. They are desperate for tax revenues and more ways to borrow more money to pay the interest on their debts. As painful as it is, eventually governments have to make drastic cuts or face shutting down. But, most of these cuts help the economy recover quicker than if the governments try to increase taxes and further burden a slowing economy.
An increase in personal savings is good for everyone, because it forces governments and businesses to cut back on unnecessary spending and rethink their financial planning.
Here are 7 reasons to increase you personal savings account while you are still employed.
- Unemployment – If you do get laid off, you may need to continue paying your bills for several months before finding another job
- Income – Earning a little extra income from your savings will help pay down other debts or make up for a reduction in income from a cut back in hours
- Avoiding fees like over drafts on your checking account – Having an adequate amount of money in your account will reduce your risk of paying bank fees or fees related to not being able to pay bills on time
- Opportunity for multiple bank accounts – Having money is several banks is a good strategy to reduce your risk of losing access to your bank account if a national bank were to go bankrupt
- Opportunity to help family or neighbors – With a 5% jump in unemployment, almost everyone knows someone that has a financial need
- Opportunity to purchase assets at liquidation prices – I’m waiting for GM to start auctioning off new vehicles with a starting price of $1000
- Saving time by not having to waste time worrying about paying bills from paycheck to paycheck – Having an adequate savings account can save you time by not having to waste time juggling bills or paying them only when you have money
Bonus: opportunity to start a small business - most small businesses start with under $5000. Many businesses are started during recessions because new needs arise with changing consumer patterns and many more people are available to start businesses because of the increase in unemployment. Having an adequate savings could give you an opportunity to start a small business and finally break free from the corporate world of working for someone else.
Saving money is fundamental to a growing economy. The need for savings is even higher now that we are in a recession and the savings rate has been so low for so many years.
Perhaps the best thing that banks and governments around the world should be doing right now is increasing interest rates, to encourage savings to recapitalism the financial industry.