Consumers are saving the lowest amount in four years as stimulus assistance funds and generous unemployment benefits have gradually evaporated, encouraging consumers to tap their savings at an accelerating pace.
The drop in savings has also been prolific for those nearing retirement. As markets have pulled back, so have retirement fund values, elongating the retirement threshold for many.
Savings rates rose dramatically in 2020 as billions of dollars in stimulus relief payments made their way into consumer accounts. Federal Reserve data found that households spent only 40 percent of their payments, used 30 percent to pay down debt, and saved about 30 percent on the initial round of stimulus payments. The spectacular rise in the savings rate to nearly 34 percent in April 2020, was a validation of how much of the payments went towards savings.
As additional relief programs along with generous unemployment benefits became effective, the savings rate remained elevated through the end of 2021. The most recent data show that the savings rate dropped to 6.9 percent in November 2021, lower than where it stood at roughly 7.5 percent before the pandemic began.
Source: U.S. Bureau of Economic Analysis, St. Louis Federal Reserve Bank
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