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Updated November 30, 2020
Introduction to U.S. Economy: Personal Saving
Personal saving, which includes the saving of households
Long-Term Economic Impacts
but not of businesses or government, can have a significant
In the long term, a higher saving rate will generally lead to
impact at both the individual and economy-wide levels in
higher levels of economic output, up to a point. When
the long and short terms. Recent trends in personal saving,
individuals save a portion of their income, those savings are
specifically during the Coronavirus Disease 2019 (COVID-
generally loaned to businesses to finance new investments.
19) pandemic, have shown notable increases in the personal
For example, an individual’s 401(k) is a saving vehicle for
saving rate.
their future consumption after retirement, but before
retirement, those funds are generally invested in various
Economic Considerations
companies through the purchase of stocks and bonds.
The saving rate, which is the ratio of total personal saving
to disposable income, presents a tradeoff between current
The overall level of investment is one of the main
and future consumption. A relatively low saving rate
determinants of long-term economic growth. Business
implies higher current consumption but lower future
investments in physical capital (i.e., machinery, buildings,
consumption. Greater present consumption boosts
and factories) allow the economy to produce more goods
individuals’ living standards now; however, it leaves little
and services with the same amount of labor or raw
to be invested in capital projects that will boost future living
materials, increasing the productive capacity of the
standards. Conversely, a relatively high saving rate implies
economy. As personal saving contributes to investment, all
lower current consumption but higher future consumption.
else equal, a higher saving rate will result in a higher level
This tradeoff has implications for both short-term and long-
of physical capital over time, allowing the economy to
term economic growth.
produce more goods and services. For further information
on business investment, refer to CRS In Focus IF11020,
Short-Term Economic Impacts
Introduction to the U.S. Economy: Business Investment.
In the short term, a rising personal saving rate can
temporarily slow economic activity, assuming no other
How Is Personal Saving Measured?
changes to income. If on average individuals begin saving a
The Bureau of Economic Analysis (BEA) measures the
larger portion of their paychecks, it means less money is
U.S. personal saving rate (see Figure 1) as the difference
being spent on consumer goods and services in the
between aggregate income and consumption spending,
economy. Because consumer spending makes up about 70%
which likely introduces some meas urement error. The
of the U.S. economy, even a small decrease in consumer
saving rate may understate the level of saving in the
spending can reduce aggregate demand and economic
economy because certain spending is considered
activity. Alternatively, a falling saving rate may result in
consumption, even though such spending is conventionally
temporarily faster economic growth as individuals spend a
thought of as investment, such as spending on durable
larger portion of their pay on goods and services.
consumer goods (e.g., automobiles, appliances).
Additionally, BEA does not include changes in asset prices
Whether changes in the saving rate are helpful or harmful in
or capital gains as income under the saving rate measure.
the short run depend on the state of the economy. A rise in
the saving rate during an economic downturn can be
Figure 1. Personal Saving Rate, 1959-2020
problematic. In response to a recession, individuals may
rationally respond to increased uncertainty about their
future income by increasing their saving rate to provide a
buffer against reduced income (caused by job loss, for
example) in the near future. As a result, however, the
economic downturn is further exacerbated due to the
additional decrease in consumer spending resulting from
the rising saving rate. By contrast, in the midst of a healthy
and expanding economy, a rising saving rate may result in a
more sustainable level of consumer spending, thus
preventing the economy from overheating. An overheating
economy occurs when demand for goods and services
exceeds the economy’s ability to produce those goods and
services, which can result in accelerating inflation followed
Source: Bureau of Economic Analysis
by a recession.
Notes: Ratio of total personal saving to total disposable income in
the United States. Gray bars represent recessions.
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Introduction to U.S. Economy: Personal Saving
Alternative measures show that many households are
reduced spending by 17% as compared with low-income
struggling to save a portion of their income, particularly
households by 4%. Further, despite the overall increase in
lower income households. According to the Federal
the personal saving rate, s ome individuals borrowed or used
Reserve, in 2019, about 58.6% of adults reported saving
savings from retirement accounts to cover financial
some portion of their income over the past 12 months. As
obligations, according to the Federal Reserve Survey of
shown in Table 1, among families with an income in the
Household Economics and Decisionmaking (SHED). In
bottom 20th percentile of income, 36.5% saved some
July, 15% of adults who had been laid off or had work
portion of their income, whereas among families with an
hours reduced reported borrowing from or cashing out
income in the top 10th percentile, 85.5% saved some
retirement savings accounts in the past 12 months , as
portion.
compared to 7% for adults who had not been laid off or had
hours reduced.
Table 1. Family Saving by Income Level, 2019
Personal Saving and the Individual
Percentile of
Median Income
Families That
Prior to the COVID-19 pandemic, the personal saving rate
Income
(Thousands)
Save (Percent)
was below 10% for a majority of the previous two decades.
Less than 20
In historical context, this was relatively low, with rates
16.3
36.5
between 10% and 15% for much of the 1950s through
20–39.9
35.6
47.8
1980s (see Figure 1). While the personal saving rate has
40–59.9
58.6
59.8
increased during the recession, there is, as of yet, little
evidence to suggest that it will remain elevated indefinitely.
60–79.9
95.7
68.8
Regardless of any future trends in the personal saving rate,
the prolonged low rates have implications for individuals,
80–89.9
152.1
74.1
such as the ability to save adequately for retirement or the
90–100
290.9
85.5
ability to pay unexpected expenses. According to SHED, in
2018, 27% of adults would need to borrow or sell
Source: Federal Reserve, Survey of Consumer Finances, 2019.
something to pay for an unexpected expense of $400, while
Notes: Income percentiles based on total family income.
12% would not be able to cover the expense at all.
COVID-19 and Personal Saving
Since 1989, median retirement accounts have grown
Consumer spending and saving are inversely related.
substantially for families in the top 10th percentile of
Individuals receive a certain amount of after-tax income
income, but much less for all other families, as shown by
that they can spend or save. By definition, what is not spent
Figure 2. Further, for those families in the bottom 60th
is saved. For this reason, it follows that when personal
percentile of income, the median retirement account holds
consumption expenditures decreased relative to income as
at a maximum $28,000, likely not adequate for the decade
the COVID-19 spread, personal saving as a percentage of
plus average retirement length in the United States.
disposable income would increase, as evidenced by Figure
1. As shown, the personal saving rate in the United States
Figure 2. Median Retirement Account by Income
increased rapidly to 33.7% by April 2020 and has since
Level, 1989-2019
fallen, although it still remains elevated from 8.3% in
February, before the pandemic hit.
Although personal saving has been on the rise since the
financial crisis of 2007-2009, the personal saving rate
increased rapidly during the pandemic for several reasons,
including precautionary saving, the inability to spend
money due to business closures, and increased personal
income from various stimulus programs, notably the
economic impact payments of up to $1,200 for eligible
adults and $500 for each qualifying child. A National
Bureau of Economic Research working paper, in which the
authors used a large-scale survey of consumers, found that
33% of individuals reported mostly saving the payment and
Source: Federal Reserve, Survey of Consumer Finances, 2019.
52% used it to pay down debt, which would qualify as
Notes: Income percentiles based on total family income. Dates
saving in this context.
correspond to survey years.
The inability to spend money due to business closures and
social distancing may be a primary reason for the spike in
(Note: This In Focus was originally authored by Jeffrey
the personal saving rate. Notably, most of the increase in
Stupak, former CRS Analyst in Macroeconomic Policy.)
saving appears to be due to high-income households.
According to an economic tracker based on private sector
Lida R. Weinstock, Analyst in Macroeconomic Policy
data created by economists to record the effects of COVID-
IF10963
19 in real-time, as of June 10, high-income households
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Introduction to U.S. Economy: Personal Saving
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