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The Commerce Department recently announced that US consumers spent more than they earned in 2006. In fact, the savings rate was negative 1 percent in 2006.
While many feel that the savings rate in isolation is not an extremely accurate portrayal of our overall financial preparedness, I doubt that anyone would argue that our negative savings rate is great news for the average consumer.
So, because I do not believe this is a case where “less is more,” I started thinking about what it would take to tip the scale back in black. And, believe it or not, I came up with something.
The IRS will be refunding taxpayers more than $220 billion this year. What if we put our tax refunds into savings? Would that be enough to bring the savings rate into positive territory?
The answer is: Yes.
If I interpreted the chart correctly, in 2006, disposable personal income was $9,748.1 billion and personal outlays $9,864.6 billion leaving personal savings at negative $116.6 billion.
Last year, more than 35% saved their refund. If the others joined them AND if things remain constant (such as our spending!) we’d end up with a positive savings rate!
I realize that this still wouldn’t put us anywhere near where we were in the ‘90s, but it is a start. Plus, for the millions of Americans living a paycheck to paycheck, adding the average refund amount of more than $2,000 to a savings account could be the difference between a minor financial setback and a major financial crisis.
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