Will You Save Or Spend To Make The Economy Grow?

Americans are doing something this year something that they’ve never ever done before and that is saving up money! The recession has taught us to be frugal and we humans, as usual, have overdone the frugality act. We are being over-frugal due to which our economy is not getting enough nourishment to grow.

Statistics show that revolving credit (a credit card debt is plummeting in recent times more than non-revolving debt (ex. a car loan). The Department of Commerce finds that the percentage of savings in the recent months has shown an increasing trend in comparison to that about two or three months ago. But is this saving really helpful? Unemployment remains as high as ever at 10.2 percent. Unless entrepreneurs stop hoarding money and start resuming taking services from people (which requires spending) how will people get employed? With such a high rate of unemployment will you be able to say that recovery is occurring in the true sense of the word?

SmartMoney has taken the opinion of five economists on whether people should save or spend now to recuperate the economy.

Trueman Bewley, Prof. Economics, Yale University says “In a time like now, when we don’t have enough spending, it’s better for the economy that people spend.” But this advice does not seem to be very effective on the American people. On an individual level saving is more beneficial than spending after tasting the bitterness of the recession. Why should they spend at the mall to improve the country’s economy? Bewley opines further “The consumer spends money for their own reasons, they’re not going to do it because they’re helping or hurting the economy”.

According to Dan Sevier, Prof. Finance, San Diego State University, opines “From a short-run perspective, having consumers hitting the malls again is good for the economy, but we have had for many years this problem of consumption spending being too high a percentage of GDP. Americans have been spending borrowed dollars, and a return to an economy that’s less dependent on the consumer is a painful but necessary process” Very true! The consumers have been running the show till recent times but now when the consumers are hard pressed for money they cannot be extravagant with the their spending which effects the entire business world very much.

According to John Canally, LPL Financial economist “There’s dangers in doing too much of both. Japan saved too much and they got in trouble, and we spent too much and got into trouble.” His view of balanced spending seems to be a very appropriate suggestion under the current economically stressful times. He feels people should now first clear off their debts and then think about spending. That’s very true. Spending irresponsibly even before settling your debts can put you in serious trouble.

For a lot of  other views on weather you should spend on save during this economically lean period, you can visit SmartMoney.com.