Q&A of the Day – Is Inflation Killing Our Savings?

This is a great question for many reasons as it impacts everything from our ability to withstand 41-year high inflation rates to the long-term impact of this time of historical personal economic stress. You may recall during the earlier months of the rapidly rising inflation last year, around the time the bonehead economists who now are attempting to redefine a recession were saying it was only transitory, we were told we could handle it because of how high our savings rates had been. There was truth to that message. In 2020, the US savings rate hit a record high. The inability for many Americans to be able to engage in normal activities much of the year allowed for a record savings rate during the year. First, here’s what the US savings rate represents... 

The savings rate totaled 16.3% in 2020 – topping the previous record of 13.2% in 1970. How impressive was that savings rate? The historic average has been 7.5%. Incidentally, the savings rate had been above the historic average in 2018 and 2019, after the impact of the Trump tax cuts were felt in the US economy, which led to record low unemployment rates and the largest wage gains relative to inflation since the 90’s - so Americans had already been increasing their savings prior to the impact of the pandemic. But what’s happened since? As you might imagine, with 41-year high inflation, it's plummeted. Here’s the savings rate trend: 

  • 2020: 16.3% 
  • 2021: 11.9% 
  • June 2022: 5.1% 

What’s more is that the savings rate has been steadily falling throughout the first half of this year – which probably isn’t surprising given that inflation had been rising throughout it. But what’s especially notable about the size of the decline is the last time the savings rate was as low as it is today. It was 2007 – at the onset of the Great Recession. Perhaps it shouldn’t be surprising that the last time the savings rate was as low as it is today, we were in a recession (which incidentally, as you continue to hear the efforts of the ever-wrong economists attempting to redefine what a recession is – this stat – is a glaring one which blows up their BS arguments). You’d talked about the number of Americans living paycheck-to-paycheck. That number is now huge.  

A total of 61% of Americans are currently living paycheck-to-paycheck. That’s been rising consistently over the past year. But even that huge number, in which just getting by is the norm, doesn’t tell the full story. 13% of Americans are now falling behind monthly net of expenses. That’s the real toll of wages having fallen by 4% net of inflation over the past year. It’s also why it’s offensive, in addition to being false, for economists and leftist academia types to attempt to say the economy isn’t contracting. It’s reflected with greater than six in ten households now just getting by. It’s reflected with the average American being 4% worse off than a year ago and with the lowest savings rate since the Great Recession. As always there remain two sides to stories and one side to facts. These are the facts, and the premise of your question is on point. Inflation has been killing our savings and retirement accounts – in addition the economy. Elections have consequences – and great economic policy doesn’t just automatically happen, and bad policy has a quick and profound impact as we’ve seen.

Each day I feature a listener question sent by one of these methods.  

Email: brianmudd@iheartmedia.com  

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Today’s entry: Submitted via talkback.  

Excited man under a shower of money

Photo: Getty Images

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