More than a few times, we here at Tematica have talked about the rising level of consumer debt across student and auto loans as well as credit cards. We’ve also talked about how older Americans are undersaved for retirement and how the upward trajectory in interest rates is going to make debt servicing more costly, crimping disposable income. In thematic speak that’s Middle-Class Squeeze with a helping of Aging of the Population.
But new data suggests consumers are aware of their situation and that is prompting them to cut back on their spending in order to save more. What we’ll have to see in the coming monthly Personal Income & Spending reports is to what degree they are opting to save vs. spend. In recent months, we’ve seen the personal savings rate reported by the Bureau of Economic Analysis slip to 3.6% in August from 6.9% in April, which took a minor bite out of personal spending.
If we see a more pronounced level of spending, it could be a headwind to an economy that is reliant on the consumer to open his or her wallet and spend. The silver lining if that comes about is those companies that we’ve identified as riding our Middle-Class Squeeze investing theme are likely to see a more favorable tailwind.
A new Bankrate survey finds that 66 percent of Americans are limiting their spending each month. Among those who are curbing their spending, 36 percent are doing so to save more money (24 percent of all respondents).
With more than 60 percent of Americans unable to cover a $1,000 emergency with savings, it’s good news that some are willing to sacrifice to start building cushions for the future.
Americans aren’t just limiting their spending to save: 24 percent of people who are limiting their spending are doing so because their income hasn’t changed, while 17 percent said they have too much debt. Another 11 percent are worried about the economy, and 5 percent are worried about the economy.
Households with incomes of $50,000 per year or more were more likely to say they needed to limit their spending to save. These households were also more likely to report being frugal, on a budget or having no desire to spend more money. They were less likely to cite stagnant income than households with income under $50,000 per year.
Meanwhile, households with income under $30,000 per year had the highest likelihood (13 percent) of citing their worries about the economy as the top reason for limiting spending.
… older Americans aren’t showing the same dedication to saving. Stagnant income was the top response for baby boomers (34 percent) and the Silent Generation (49 percent).
For a generation that is still working, flat-lining wages brings concern. In 2017, the labor force of Americans ages 55 and up accounted for about 23 percent of the average annual labor force. By 2024, the Bureau of Labor Statistics estimates that percentage will increase to almost 25 percent.