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Keep on saving

Americans continue to save. The personal saving rate -- personal saving as a percentage of disposable income -- came in at 4.6 percent in January. It's down from the 5.2 percent rate of a year ago, according to government statisticians.

Looking at this chart, the personal savings rate has moved to the 4 percent to 5 percent range, despite savers making 0.1 percent to 0.2 percent on their money. We're back to the range that held for part of the 1990s.

Considering how harsh the last couple of years have been on so many people -- from young adults seeking their first full-time job to retirees watching their pension values slide -- it's doubtful that the savings habit will erode. Memories aren't that short.

After all, I don't think many people will treat their home equity like their own personal ATM. A generation has learned the hard way the risks in equity cash-outs.

For another, the population is aging. Most people would like to enter their 60s debt-free and with some savings (outside of their retirement accounts). That may be a goal rather than a reality. Again, it's a force for continuing to save.

My own guess is that we're heading back to the 7 percent to 8 percent range that dominated for much of the mid-'80s to mid-'90s.

I do think we will get a burst of pent-up demand once household confidence in the economy recovery becomes widespread. For example, the average age of an automobile is near a record-setting 11 years old, according to James Paulson, chief investment strategist at Wells Capital Management. Bargain hunters will also start putting a down payment on homes. Still, my best guess is the underlying savings rate trend is in the 7 percent to 8 percent range. It's a conservative forecast. Looking at the chart, you can see that the personal savings rate was 10 percent to 11 percent-plus as recently as he early '80s.

Profligate borrowers and conspicuous consumers get all the attention. They make for good stories. Yet all over the country live people who are careful with their money, active in their local communities, giving money to causes and charities they deeply believe in, even though money is tight. We all know people like this, but they don't get as much notice as they should.

In a moving article from a year ago, the Wall Street Journal's assistant managing editor John Bussey highlighted one of those frugal folks: For My Dad, the 'New Normal' Is Old Hat: To many older Americans, austerity isn't a novel concept. Bussey's father had a career in the military. He watched the Communists build the Berlin Wall in 1961. He was in the helicopter that left the embassy roof in Saigon that last night in April 1975. He was there when the American embassy in Tehran was stormed in February 1979. "And along the way he'd put three sons through college and cut checks for military charities, Boy's Town, and old friends like Aunt Lydia, not a legal aunt but someone who each year sent us jars of tomato juice she made from her garden, and who gave my father a place to sleep when he was a boy."

Bussey believes his father is "emblematic of a broad swath of America." I think he's right and will become even more so with time. The "broad swath" is getting even bigger.

About the author

Chris Farrell is the economics editor of Marketplace Money.

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