When the amount of bank savings, as percentage of GDP, is growing, it means that less money is available for spending and investment. Since nearly 80 percent of the economy, or GDP, is made up of consumer spending and investments (the remaining 20% is made up of government spending), the economy stagnates when consumers divert more of their disposable income to bank savings. Had consumers kept their bank savings at the same pace as they did prior to the Great Recession, the U.S. economy, or GDP, should have been nearly $2 trillion bigger today - $19 trillion as oppose to about $17 trillion currently.
The reason consumers accelerated the pace of their bank savings by $2 trillion since the beginning of the Great Recession is because they experienced a higher level of money anxiety due to uncertainty about employment, housing and investments. Prior to the Great Recession, the Money Anxiety Index stood at 58.6 compared to 71.6 today; an increase of 13 index points. Research in behavioralogy (behavioral finance) clearly shows how higher level of money anxiety results in greater savings as an instinctive reaction to economic uncertainty.
The Money Anxiety Index measures consumers’ level of financial worry and stress. 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. The Money Anxiety Index Is highly predictive. It signaled 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 and concept are empirically demonstrated in the book Money Anxiety available in paperback and eBook formats in all major online booksellers such as Amazon, Barnes and Noble, Google Play and iTunes store.