Americans Are Still Stashing Cash. Is That a Wise Move?
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Here's your Money Briefing for Monday, December 6th. I'm J.R. Whalen for The Wall Street Journal. We've told you how several rounds of government stimulus checks and lockdowns during the height of the pandemic helped push American savings rates to historic levels. But as the economy recovers and consumers are back out shopping, they're still putting away huge amounts of cash.
So people weren't able to spend money on the things they normally would have spent money on in 2020. That led to a huge jump in the savings rate. And then we saw that continue in 2021.
That's our personal finance reporter, Julia Carpenter. She's been looking into why Americans continue to build a stash of cash, even while their spending has rebounded. That's after the break.
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Why did U.S. savings rates surge during the pandemic?
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The rapid spread of the pandemic last year turned many Americans into super savers. But even as the economy is recovering, they're still socking away significant amounts of cash. For more on what's going on, I'm joined now by WSJ personal finance reporter Julia Carpenter. Julia, thanks very much for being here.
Thank you for having me.
So, Julia, how much cash are we talking about that people have put away? And how does that compare with historical trends?
We know historically people tend to save more during recessions in times of economic uncertainty. But this number is pretty big. It's $1.6 trillion in excess savings. That's what the Federal Reserve Bank of New York calls the savings that we've been able to save that we otherwise wouldn't have been able to save before the COVID-19 crisis.
Yeah. So why are people putting all this cash away now with the economy growing?
Well, we know historically people do this because they're nervous. They're worried about potential worst case scenarios. They want to make sure that they have money on hand should they need it, should their income be affected, should they have to dip into the savings for emergency purposes. So people are doing it because they're not sure what 2022 holds. It's one of those things I was speaking with people and they said, every time it starts to get better, you know, this summer we had vaccines, people were finally able to travel again. Then something happens where it gets worse. We have new variants. There's more uncertainty introduced. And adding to all of this is the uncertainty now here because of the Omicron variant.
Still, $1.6 trillion is a lot of money. How has this cash grown so much?
It's not what you think. It's not that people were intentionally stockpiling $1.6 trillion of cash, anticipating their savings to grow this much. It was more that the pandemic and then the subsequent uncertainty, the ups and downs over the last 18 months have forced people to change how they spend. So people weren't able to spend money on the things they normally would have spent money on in 2020. That led to a huge jump in the savings rate. And then we saw that continue in 2021. People were concerned about the variant.
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