Date: 2020-05-19 20:30:42
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This last week, one of the biggest headlines in the news was that we have a NEW threat to our economy: Americans are saving like it’s the 1980’s.
That’s right…Americans are now SAVING TOO MUCH MONEY, and that’s going to be the new downfall of our economy. After all, if people aren’t spending money…businesses won’t have as many customers, they won’t hire as many people, unemployment will remain high, some businesses might shut down, even more people will be laid off, more people will be competing for the same jobs, that drives DOWN the price of labor, businesses make less money so the stock market declines even more…and now, we’re stuck in a spiraling downtrend of economic mess, all started because people were holding too much money.
Basically…the convention wisdom is: We should all save a portion of our income, and the more money you can save – the better off you’ll be. But, the COUNTER to that argument is: We still need people SPENDING, because – otherwise, businesses don’t do as well, and when businesses don’t do as well, they hire fewer employees – and, when fewer employees are hired, you’ll end up making LESS money – which means you won’t be able to save as much. So, saving money is good for you…but, saving TOO MUCH is bad for everyone else…and that’s where the problem lies.
HOWEVER…in terms of what this means for our economy…we can’t deny that the economy DOES benefit from a surplus of spending…the more money that gets spent, the more it circulates throughout our economy, and the more the entire economy can grow. When the spending stops, that’s bad for business…and bad for growth..
However…if people aren’t spending money…it has to EVENTUALLY go somewhere. And in this case, the more people are saving – generally, speaking – the more money they can INVEST, and the more money they can spend LATER as things slowly improve, which will – again, at some point, end up back into our economy.
Another benefit is that the more money people save, the LESS money is spent on debt re-payment – the less money spent on bankruptcy – the less money spent on payday loans – and that’s MORE free cashflow that can be left over for other, more valuable and important purchases.
We’re in VERY a unique time, NOW, where many businesses were FORCED to shut down, many people were FORCED out of work, and it’s unclear how much demand is going to pick up once things begin to normalize. Should businesses re-open, and there’s NO money to be spent…as it stands right now, that CAN be detrimental – and it’s something to absolutely remember.
So, YES – this is why articles like this point to high savings as a weakness of our economy. After all, the amount of spending and savings is directly correlated with the consumer confidence that they’ll make enough money to pay for the things they buy. When that confidence goes away…they begin saving more money.
HOWEVER…THIS IS A UNIQUE TIME. Businesses might begin to shift more online…restaurants might expand their takeout services…more people could work from home, where retail offices are no longer in demand – and, In the short term, this could be crippling to some businesses…but PROSPEROUS for others.
This might take some time to come back…and, inevitably, there will be businesses that just can’t adapt. Unemployment could remain abnormally high for awhile. But, I believe, EVENTUALLY, businesses will come back up, and spending will increase for the majority of people, although this could very well change the landscape of how we operate our businesses, where we work, and how we smash the like button for the YouTube algorithm.
For business or one-on-one real estate investing/real estate agent consulting inquiries, you can reach me at GrahamStephanBusiness@gmail.com
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