Hidden in numbers released by the Commerce Department last week was the startling revelation that average household savings has plummeted by nearly half in two years.
In June, the personal savings rate was 3.8 percent, down from 2015, when households were putting away 6.3 percent of after tax-income on average, according to Commerce’s Bureau of Economic Analysis.
Housing costs could be a culprit to blame for the decrease.
Since 2015 average rents rose nearly 16 percent. At the same time, a 20 percent increase in the price of the average sale of an existing home increased 20 percent, creating a dual-edged sword when it comes to financial security issues faced by U.S. households.
On one side, the increase eats more of the paychecks of purchasers.
On the other side, the mortgage payments (which do not show up in the personal savings numbers) aid retirement security because for tens of millions of Americans, their homes are their biggest financial assets. For many, a paid-off mortgage means they don't have the huge housing bill that renters have.
Another possible factor in the decreased savings is an improving economy, which may make people feel more secure about their jobs and the value of their retirement nest egg.
“This is a classic example of what economists refer to as the wealth effect. When the value of stock portfolios rises due to advancing stock prices, investors feel more comfortable and secure about their financial well-being, causing them to becoming more comfortable with spending more,” said Bob Johnson, CEO of the American College of Financial Services.