This chart from the Federal Reserve provides a historical look at the savings rate, which has varied from 2% to 17% over the last fifty years. My students are always surprised to see the chart showing how low the national savings rate is today (5.7% based on July 2014 data). This provides a good opportunity for a discussion about the optimal savings rate for individuals and families.
A sampling of follow-up questions you may want to review with students:
- Why is saving important?
- Build wealth, save for emergencies, if you save for short and long-term goals will reduce need to borrow, compound interest increases the importance of saving at a young age, etc.
- What has been the most recent trend?
- Has been increasing recently but still quite low as compared to historical levels.
- What impact does saving have on consumer spending?
- Saving actually reduces consumer spending so can have a dampening effect in the short run on the economy since 70% of economy driven by consumer spending.
- Was your guess higher or lower than the actual figure which is close to 6%?
- Most will guess higher; may want to discuss why they think it is so low. Low interest rates may be playing a role today; I was saving money from my newspaper route in 1979-1980 when interest rates were up to 15% for CDs which might explain the high savings rate during that period.
- What do you think is a good saving target to shoot for your individual situation?