The pattern suggests that Americans, wounded by the financial crisis and scared by an uncertain job market, do not want to take any risks with their money — even as the government is encouraging risk-taking.
The Fed recently announced an unprecedented plan to pump hundreds of billions of dollars into the financial markets to reduce interest rates, which should have the effect of boosting stock prices and making it cheaper to buy homes.
But if consumers remain on the sidelines, it means the policies may benefit only the most well off and secure — and fail to help average Americans or the broader economy.
“People have lost their appetite for risk,” said Karen Dynan, co-director of the economic studies program at the Brookings Institution. “They’ve been burned by the stock market. They’ve suffered through capital losses on their homes. And so they’re hunkering down in what they view as the safest place to store money.”
Fed Chairman Ben S. Bernanke said most families eventually will feel the effects of the central bank’s policies.
“My colleagues and I know that people who rely on investments that pay a fixed interest rate, such as certificates of deposit, are receiving very low returns, a situation that has involved significant hardship for some,” he said in a speech Monday. “Only a strong economy can create . . . sustainably good returns for savers.”
The mattress trap
Households began squirreling away cash in the midst of the recession. The savings rate, which was at 1 percent in 2005, generally fluctuated between 5 percent and 6 percent during the recent recession. This year it has hovered around 4 percent, still above historical norms.
“A lot of families have drained whatever savings they had because of hard times — job losses or low wage growth — and are trying to replenish their reserves,” Dynan said.
Nearly half of Americans still do not have enough savings to cover three months of expenses, according to a recent Bankrate.com study.
Even those on solid financial footing are wary about the stability of the economy and unwilling to subject themselves to market risks, said Greg McBride, senior financial analyst for Bankrate. They know they need to invest some portion of their income to create wealth but are not shoveling money into the stock market, despite the possibility of higher returns.
Some say the wild market swings of the past few years have been too unnerving for average investors, and the recent spate of technical glitches certainly does not help. Others peg the outflow from stocks on shifting investment strategies as cautious Americans turn to bonds.