More people choosing to save, not spend

Doug Sheridan was among thousands of Cessna Aircraft workers who were furloughed for four weeks last year.

The loss of a month's pay was manageable, he said, be-cause of a savings and debt-reduction program he and his wife, Tammy, started three years earlier.

The program called for the Sheridans to have an emergency fund, a dedicated savings account with enough money to cover three to six months of their household expenses.

"I know that a long time ago, before this, it was kind of a major worry" not having that kind of savings, Sheridan said. "Now, I don't do that anymore."

In 2009, the nation's personal saving rate climbed to a level not seen this decade.

The trend occurs at the same time the nation — and Wichita — work through the deepest economic recession in decades.

While economists said that an increase in personal savings is good for the economy in the long run, it's not going to help in the short term.

For most of the decade, the economy has been highly dependent on consumer spending for its growth, they said. Thus a vital economic growth component has been diminished in this recovery.

"Unfortunately we got very unhealthy in the last decade," said Malcolm Harris, an economist at Friends University.

The saving rate was 4.6 percent in 2009, the highest this decade, according to the federal Bureau of Economic Analysis.

The rate is a percentage of disposable personal income, or the money people have left in their paycheck after taxes, health insurance and 401(k) deductions.

Economists said it's typical for the saving rate to increase during a recession because it becomes harder for people to borrow money, and they generally spend less not knowing if they will have a job.

During the last recession, in 2001-2002, the saving rate climbed to 3.5 percent from 2.7 percent.

Where it's going

For some Wichitans who have curbed their spending and put more money in savings, the recession isn't the overriding factor.

"We just wanted to know where our money was going," Tammy Sheridan said. "We weren't getting ahead even though we were seeing salary increases."

So about four years ago, the Sheridans signed up for Financial Peace University, a national personal finance program created by talk radio host Dave Ramsey that emphasizes eliminating nearly all debt, increasing savings and paying for all purchases with cash.

Mike Janzen, a Financial Peace counselor, said he hasn't noticed an increase in demand for the classes since the recession began.

"The crazy thing is, no," said Janzen, who has been teaching Financial Peace for six years. "I think it gets back to that pride thing, that people want to say, 'I can figure this out'... or 'I don't want people to see that I'm having financial problems.' "

Part of the program calls for people to create an emergency fund.

Doug Sheridan estimates they put between 25 and 30 percent of their income in savings, including the emergency fund.

Tammy Sheridan said the program also has led her to be a more frugal shopper. Even at the grocery store, she said, she probably spends 25 percent less than she used to.

"We're not living any worse off than we were before," she said. "It just makes me think before I make a purchase."

Nicole McKown also is more cautious with her spending. The single mother of two said she decided late last year she wanted to "better my relationship with money."

"I've always struggled with money," she said.

So she set up a program with financial planner Byron Watkins that she began following in January.

The plan calls for her to establish a spending budget and a savings plan that includes separate short- and long-term savings accounts.

The spending plan does not allow her to spend more money than what remains after her expenses and savings.

McKown said 10 to 15 percent of each paycheck is deposited into those savings accounts.

"Before, I was saving probably 1 to 2 percent," she said.

"It has made me feel so much more secure. It's also made it easier for me to focus on prosperity rather than my debt and what I don't have."


Jeremy Hill isn't convinced that the savings behavior of late will last.

While the saving rate has jumped to the highest level in a decade, it's still far less than the 10 percent rate in the 1970s, said Hill, director of Wichita State's Center for Economic Development and Business Research.

And Americans' attitudes about saving took a big turn in 2000.

"We're a consumption economy... with expectations that we're going to get a pay raise in the future or the value of our homes will increase," Hill said. "I've got a bad feeling we're going to go back down again."

But he said it probably won't be at the levels early in the decade, which were 2.9 percent in 2000 and 2.7 percent in 2001, according to the federal government.

That's because credit probably will never be as easy to get as it was earlier in the decade, Hill said.

Friends' Harris said he thinks the current saving rate could be sustained if there were supportive federal policies, such as rewarding people to save through the tax system.

"A lot of our policies are aimed at increasing consumption," Harris said.

A nation of savers, he said, means more of people's income will go to the banks as deposits, stabilizing the banking system.

And it would mean less debt for the United States.

"Our willingness to spend out of credit versus spending out of incomes forces us (as a country) to borrow from abroad," Harris said.