Warwick Ventures predicts that American savings levels will return to 1950's levels. At this period, America’s households saved over 8% of their disposable income. From 2002 to 2007, by contrast, that rate averaged only 2.7%.
The reason for the small savings? Americans saw the rising value of their homes, and neglected saving, explains Jeffrey Samuelson. American households watched their wealth grow without straining to add to it. Their collective net worth increased from $42.1 trillion in 2001 to $63.9 trillion in 2007. But since then they have looked on in horror as their wealth plunged to $51.1 trillion in the first quarter of 2009. According to an analyst at the McKinsey Global Institute, a think-tank, the crisis destroyed a bigger proportion of household wealth, in real terms, than was lost during the Depression.
These epic losses produced large change of behavior--households cut spending and savings rose to 5%, which led to a contraction in aggregate demand. Warwick Ventures predicts that household saving rates will reutn to the high levels of the 1950's and 60's and beyond, potentially exceeding 10%, giving way to a new era of thrift.
