America Hunkers Down: A Nation of Savers?

In ordinary times, Bill Rattner would be better off than most. He's paid off his mortgage and has no credit card debt. He and his wife, a social worker, have been faithfully socking away money in their 401(k) accounts.

The 50-year-old Richmond resident, however, is also the creative director for the e-commerce group at Circuit City, which recently filed for Chapter 11 bankruptcy protection. He knows he could soon end up joining the 11.1 million Americans who are out of work.

So Rattner, with three children -- two of them in college -- has started acting like a man making up for years of financial profligacy. He and his wife have cut their expenses by 15 percent. They've trimmed $70 to $80 from their monthly grocery budget. They switched car insurance companies to get a lower rate. They are staying home for dinner more often and are buying fewer clothes. Whatever they save, they stash in a high-yield money-market account.

"Everything gets considered. Is this a need? Is this a want?" Rattner said.

There's evidence to suggest that more consumers are hunkering down. After hovering near zero for much of the decade, savings as a portion of disposable income rose from 2.4 percent in October to 2.8 percent in November, according to the Bureau of Labor Statistics. Also in November, auto loans, credit cards and other forms of consumer borrowing fell by $7.9 billion, the largest dollar amount since recordkeeping began, more than 50 years ago.

From the vantage point of Stephen Bingham, a financial planner at Bingham Financial Advisory in Arlington, the belt-tightening is long overdue.

"More people are coming to me stating that they want to get their financial house in order because of what's going on with the economy," Bingham said. "In some circumstances, they have extensive debt, including large mortgages, many over $500,000, some over $1,000,000, with very high monthly payments; college debt; and, for many, extensive credit card debt -- and conversely very little in emergency cash reserves."

Ironically, even if consumers are saving more, they could be helping to make the recession worse. The more people save, the less they spend, driving down demand for goods and services, which in turn dampens economic growth. The economist John Maynard Keynes dubbed this "the paradox of thrift."

But some economists question whether most Americans really are saving more.

Charles Biderman, founder and chief executive of TrimTabs Investment Research, an independent firm based in Sausalito, Calif., disputes that people are showing their thrift. His firm's analysis of daily income tax withholdings from the Treasury Department indicates that income is lower than the BLS has estimated and that the savings rate is negative.

He said money flowing into all savings vehicles, plus all mutual funds -- long- and short-term -- has been sinking since April 2008, suggesting that consumers have been selling stock and other securities to pay bills.

Biderman's data support the impressions of consumer debt experts that the drop in spending reflects the economic stress households face. "Defaults are rising. An uptick in savings doesn't mean all of a sudden people are in great financial shape," said Robert Lawless, a bankruptcy expert who teaches law at the University of Illinois.