One Possible Benefit of the Recession- Your Personal Savings Rate is Rising

Today's economic picture is extremely gloomy. Companies are slashing jobs faster and faster by the week as more Americans become either unemployed or under-employed. Americans are having a very difficult time getting by right now because the economic situation is worse than just about anyone has ever seen it.

Some economists actually think we may be heading for another depression. I certainly hope that the economy turns things around quickly, but I also hope that individual Americans, as well as the American government, learns a lesson through these terrible hardships. The most important lesson that we must learn is that we should always save extra money and have a rainy day fund. The days of spending more money than we bring in needs to be over and we need to usher in a new era of responsibility with our budgets.

After the Great Depression many Americans became extremely frugal with their money and personal savings rates in our country were as high as 12% or so. What exactly is ther personal savings rate? The personal savings rate is a measure of what you make minus what you spend. Your personal savings rate is whatever have leftover in the end. In recent years, most specifically late 2005 and 2006 the American personal savings rate actually turned negative. Americans were spending far too much on their credit cards and getting deep into credit card debt, while being very irresponsible with their money. The fact of the matter is, whenever people are consistently saving virtually nothing or even spending more than they bring in, it is bad news for the long-term health of our economy.

The current recession our country is in may end up being a positive to the frugality of our government as our well as its people. In fact, we have already seen the personal savings rate bump up to 2.8% at the end of 2008. What is the problem with this? Well there is a catch 22 here that is basically impossible to avoid. As more United States households save their money the economic recession is liable to last even longer. At the same time, in the long run Americans will become less reliant on debt and be in a much stronger cash position for future investments.

Let us hope that the American government gets the message as well. The United States budget deficit in 2008 was an astounding $455 billion. The bad news is that isn't going to seem like much of anything compared to 2009's deficit with all of the government bailouts and stimulus packages. Most analysts believe the deficit will reach a record $1.2 trillion at the very least in 2009. Those kind of numbers are mind boggling and very scary. The fact that our government is so far in the red is scary to individuals who have so much money in things like certificates of deposits and treasury bonds.

As a country we need to boost our personal savings rate. It seems that individuals are starting to get the message, but will our government also get the message?