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The Savings Balancing Act

Average spending per householdThey say necessity is the mother of all invention. And if that’s true, there may be some bright spots in this dour economy of ours.

The U.S. Bureau of Labor Statistics offered insight last week into the amount of money households are spending. Last year, average expenditures dropped 2 percent, on the heels of a 2.8 percent decline in 2009. No surprise there. Consumers are in no mood to spend.

Dig into the numbers a bit deeper and you’ll see some interesting changes in how they’re spending. Expenditures on vehicle maintenance, for instance, rose 7 percent, while spending on vehicle finance charges dropped 14 percent. At the same time, public transportation expenses increased 3 percent. This could suggest, at least in part, that consumers are holding onto their current vehicles longer and exploring other, cheaper options for travel to offset higher fuel costs.

Both are smart moves from a personal financial perspective—especially if those behaviors stick.

But make no mistake, the continued overall decline in spending also highlights a real challenge. Consumers account for about two-thirds of economic activity. When they rein in spending, the ripple effects can be extensive, as evidenced by the current unemployment rate and other challenges we’re facing.  

Consumers need to save to protect their financial futures.  How do they balance that goal with our economy’s need for stimulation that spending brings? A recent Federal Reserve report (page 7) offered this statistic: Each one percentage-point increase in the savings rate is associated with a decrease in spending nationally of $100 billion. So what message should we be sending to consumers? In an economy with rising prices and declining spending, how do we help stimulate the economy while still encouraging saving? What advice do you give your clients and family?

Cheryl Gravis Reynolds, Director of Communications, Advertising and Brand Management, American Institute of CPAs. Cheryl oversees executive, member, international and state society communications as well as advertising and brand management and social media strategy. She also leads the CPA profession's award-winning financial literacy campaigns, 360 Degrees of Financial Literacy, and Feed the Pig, a public service advertising campaign with the Ad Council.  

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