Americans are saving less money — some can't afford to, others are focused on investing

Saving money has always been automatic for Stacy Burnett.

“That New England practicality was imbued in me since I was hatched,” she said.

Burnett, who lives in southwestern Connecticut, used to max out her retirement contribution and put aside an additional 15% to 20% of her income every month. Then, earlier this year, she bought a nearly century-old house. It needed a lot of love, and when Burnett made her budget for repairs this spring, she planned to spend $120,000, which she said already felt like a crazy amount of money. But, it turned out, she was going to need more.

“Between April and when the work began in August … the prices of everything just went crazy,” she said.

For example, cabinets for her kitchen doubled in price. Shipping costs also went up.

“Multiply that across every single project this house needs, and I can't save any money,” said Burnett.

She went from saving a big chunk of her income to spending all of it — and then some.

“I have one credit card that’s maxed out, and I’m trying to pay that down, because the interest on it is insane. So I’m learning how to carry a balance on a credit card right now, and it’s very uncomfortable,” she said.

Rising prices have hit a lot of people’s ability to save. The personal saving rate — that’s how much we all saved divided by our total disposable income — fell to 4.1% in August, according to the latest data from the Bureau of Economic Analysis. That’s the lowest it’s been in nearly four years.

“Inflation and the price levels are rising at significant rates, at rates that people historically haven't been used to,” said Vicki Bogan, who studies household finance as an economics professor at Duke University.

Those prices are also rising at a faster pace than wages. In the past year, average hourly earnings have increased 3%, while prices are up 3.4%. When a person dips into savings to cover current expenses, that’s known as “dissaving.” It leaves households feeling financially fragile.

“It's a psychological tax, almost, to be in a situation where you can't pay your bills until you get that paycheck,” said Bogan.

People at the very top end of the income spectrum are saving less, too, but for a different reason: the stock market has been going gangbusters for the past few years, and they see their investments shooting up.

“As their stock market wealth rises…the less and less they seem to feel they need to save out of their income,” said Jonathan Pingle, the chief U.S. economist at UBS.

Basically, every time “We’re in the Money” plays when we do the numbers, people with money in the stock market get a little dopamine hit. Then, they don’t feel obliged to save as much of their income. You could think of the saving rate as being hit at both ends of the K-shaped economy.

“In some ways, it's a really remarkable feature of some of the inequality that we're seeing across income groups,” said Pingle.

While the economy depends on strong consumer spending, lack of saving is also a problem. For example, it hurts the housing market.

“Coming up with a down payment is a challenge for many households,” said Pingle. “On a longer term basis, [a lack of saving] also increases things like our reliance on Social Security, limits reform.”

Pingle doesn’t think the recent Fed rate hike from 3.75% to 4% will significantly change people’s saving behavior. A quarter percentage point jump doesn’t mean they’re rushing to the bank to open CDs.

“And for the lower income households, it means higher credit card interest rates, higher home equity lines of credit,” said Pingle. “It’s not really clear that this is going to be the boost that frees up more of their income to be able to save.”