This chart from the Federal Reserve provides a historical look at the savings rate, which has varied from 2% to 17% over the last fifty years.  My students are always surprised to see the chart showing how low the national savings rate is today (5.7% based on August 2016 data).  This provides a good opportunity for a discussion about the optimal savings rate for individuals and families.

A sampling of follow-up questions you may want to review with students:

• Why is saving important?
  • Build wealth, save for emergencies, if you save for short and long-term goals will reduce need to borrow, compound interest increases the importance of saving at a young age, etc.
• What has been the most recent trend?
  • Has been increasing recently but still quite low as compared to historical levels.
• What impact does saving have on consumer spending?
  • Saving actually reduces consumer spending so can have a dampening effect in the short run on the economy since 70% of economy driven by consumer spending.
• Was your guess higher or lower than the actual figure which is close to 6%?
  • Most will guess higher; may want to discuss why they think it is so low.  Low interest rates may be playing a role today;  I was saving money from my newspaper route in 1979-1980 when interest rates were up to 15% for CDs which might explain the high savings rate during that period.
• What do you think is a good saving target to shoot for your individual situation?

Want this resource and questions in slide format to use in class? Click here!

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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