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How Will the Increase in the Personal Savings Rate Affect the Economy?

Wondering how the increase in the personal savings rate will affect the economy? In this week's Arista Advice Paul L. Moffat of Arista Wealth Management explains how it is a positive thing and why Americans should be saving more.

Full Transcript:

Hope you're well in light of the COVID-19.
Question of the week is: Paul, how will the increase in the personal savings rate affect the economy? 

Some good news came out about two weeks ago from the bureau of economic activity BEA.GOV. You'll see here that the following chart really demonstrates the good news that I want to talk to you about. In the last 3 months, January of 2020 the personal savings rate was 7.7. In February, it went to 8.0%, and then in March it got as high as 13.1% This is good news because Americans are starting to save money. 

In a few weeks, we'll know what the April number was, but we're very, very excited to see that more people are saving money and putting money aside and paying down their debt, and for the first time in many, many months and years. It also provides more funding for investment which then increases purchases of individual stocks and long-term investments.

In an economy where personal savings are high, it means that the economy is choosing long-term investments over short term consumption. The higher personal savings can help finance higher levels of investment and boost productivity over the long-term. In addition, households that save more will certainly have a more secure financial future.  

What amount should you be saving on a monthly basis? Please join the double digit club. Look for ways to be saving double digit numbers on a monthly basis both in your savings account, your emergency account, your IRAs, your 401(k)s. No matter who you are - large corporations,  super, super high net worth individuals save, save, save, and may we contribute to a higher US savings rate.