The latest Gallup poll shows that nearly two in three Americans now prefer saving money more than spending it. This is the highest percentage yet measured (65%) of consumers who prefer savings to spending based on the April 6-10 Gallup Economy and Personal Finance poll.
The increase in savings sentiment is showing up in the latest retail sales and in the first quarter 2016 Gross Domestic Product (GDP) figures. March retail sales were down 0.3 percent, and GDP for the first quarter of this year is up only 0.5 on an annualized basis according to the U.S. Department of Commerce.
Spending, or personal consumption, is the pillar of the U.S. economy as it makes up about 70 percent of GDP. When consumers shift more of their disposable income from spending to savings, the U.S. economy is at a risk of slowing down. Merely 5 percent reduction in personal consumption is enough to push the U.S. into a recession.
One of the main drivers of the shift towards greater savings is money anxiety due to economic and financial uncertainty. In March, the Money Anxiety Index increased by 1.3 index points to 64.0 reflecting higher level of financial stress and anxiety among consumers. The elevated level of money anxiety caused consumers to default to their instinctive reaction to reduce spending and put more money in savings. This is a normal reaction to economic and financial uncertainty rooted in our mechanism for self preservation.
The Money Anxiety Index is an early-warning system to shifts in the economy. The index is highly predictive. It predicted the arrival of the Great Recession over a year prior to the official declaration of the recession in December of 2007. The Money Anxiety Index was developed by Dr. Dan Geller, a behavioral economist and the author of Money Anxiety.
The Money Anxiety Index measures the level of consumers' financial worry and stress based on their spending and savings levels. Historically, the Money Anxiety Index fluctuated from a high of 135.3 during the recession of the early 1980s, to a low of 38.7 in the mid 1960s.