One alarming statistic that has gone somewhat unnoticed in the past year is the decline in the personal savings rate of U.S. households—that is, the amount that is saved and invested out of the total top-line income. In July, which is the most recent data we have, that rate had fallen to 2.9%, following a trend that began this year. 2.9% is at or near the lowest level of savings Americans have experienced since the early 1960s. To put that in perspective, the savings rate averaged 8.45% from 1959 to 2024.
Economists might see this as good news. It means that consumers are willing to dip deeper into their pockets to spend, and consumer spending is the biggest component of economic growth. It also reflects optimism in the future: people have jobs, wages are going up, and so it’s natural to imagine that this will continue into the future.
But the other side of the argument is that people’s personal balance sheets might be less resilient if/when we encounter a recession or sudden return of high inflation rates. Consumer debt, and particularly credit card debt, has been rising since 2013—basically during a balmy economic climate (with the notable exception of the Covid pandemic). Credit card balances, overall, have reached $1.14 trillion outstanding, up 5.8% from a year ago.
There is evidence that the buildup in debt is concentrated among a minority of Americans—which means that they are disproportionately exposed to economic shock. Lending Tree estimates that 47% of adult credit cardholders carry a balance on their cards, at an average rate of 22.76%. Just over 3% of those individuals are past due on their balances—and that number has been rising over the past two years.
The lesson here, perhaps, is not to let the good times lure us into believing that saving a healthy percentage of our income has become unnecessary. There is a recession in our future (we don’t know when) and it will be a rude awakening for a percentage of the U.S. population.