Saving money is back in vogue

MINNEAPOLIS — When the stock markets and housing values were soaring, certified financial planner James Bryan would plead with clients to set aside six months’ worth of take-home pay just in case of a job loss or a major home repair.

“I had that conversation many times during prosperous times, and often it didn’t take hold,” said Bryan, president of Bluestone Wealth Strategies in Edina, Minn.

These days he doesn’t have to work as hard to persuade those same people to postpone purchases and trim spending to build that cash reserve.

Take Kalli-Ann Binkowski, for example. A year ago, she didn’t think twice about taking a trip to Ireland or financing a major purchase.

But in recent months the 37-year-old science teacher from Blaine, Minn., lived with a fridge on the fritz until she saved enough cash to buy one outright. And in December, she upped her savings rate.

“I feel like I want to put more in savings, because that’s what everyone’s talking about,” she said.

Binkowski is part of a growing trend.

After years of negative or near-zero personal savings, the statistic tracked by the Bureau of Economic Analysis is soundly in the black.

The reversal began when government stimulus checks designed to jump start the economy were saved, not spent.

In November, the number measuring Americans’ personal savings as a percentage of disposable income reached 2.8 percent and is expected to rise throughout 2009. During the 1982 recession, the savings rate hit 11 percent.

Wells Fargo economist Scott Anderson expects that the savings rate will rise to 5 percent or 6 percent. His reasoning? The wealth effect, or in this case the lack-of-wealth effect. The nation’s investors and homeowners are $8 trillion poorer than they were a year ago.

According to his calculations, housing and stock market declines cost U.S. households $5.3 trillion in lost wealth in the first three quarters of 2008. Factor in the horrible fourth quarter to get to $8 trillion.

For every $1 poorer the country’s consumers are, Anderson figures they will spend 5 cents less than they did when they were feeling flush. That translates into $400 billion in lost spending annually.

And despite cries that the recession will worsen if consumers don’t step up to do their part to boost gross domestic product, Anderson doubts that economic stimulus, lower fuel prices or deflation will drive consumers to the mall.

It’s back to “a ‘penny saved is a penny earned’ type philosophy,” he said. “We need debt levels to come down so that consumers can regain their footing and clean up their balance sheets. ... Debt-driven consumer spending will be vilified.”

But other economists, such as Massimo Guidolin with the Federal Reserve Bank of St. Louis, are unsure whether the consumer’s mind-set has shifted toward thrift.

One possibility is that they had no choice, because battered lenders are tightening standards and forcing Americans who used to rely on home equity or credit cards to change their behavior.

To be sure, economic conditions make it difficult, if not impossible, for some to increase savings, let alone save any money. Credit card, vehicle and mortgage delinquencies are rising, according to data from credit bureau TransUnion.

A rising unemployment rate has idled workers such as 47-year-old Roger Hamm of Maple Grove, Minn., who said in an e-mail that he’s hoping to find work before his severance pay runs out.

“We have no short-term savings,” said Hamm, who in November lost his job as a senior product manager. “We are trying to pay off debt as fast as we can.”

Financial uncertainty is bringing more people to see Debra Harvey, a debt counselor with Thrivent Financial Bank’s Debt Savvy program.

“People are scared of losing their jobs, and they don’t have the disposable income to put into a savings account,” she said. For them, the conversation turns to strategies for handling their debt load in the event of a layoff or a pay cut.

XKara McGuire writes about personal finance. Write to her at karastartribune.com or at the Star Tribune, 425 Portland Ave., Minneapolis, MN 55488.