Americans Save More, Spend Less

Americans do not plan to spend money received from their tax refunds or saved thanks to lower gas prices in a sign that aggregate demand remains depressed.

A new survey of over 1,000 Americans by Principal Financial Group showed that over half of respondents do not plan to spend their refunds on consumables, opting instead to save the money or invest it. A significant portion—35% of total respondents—said they will use the money to pay down debt, while a minority 18% said they would buy consumer products such as electronics, jewelry, and clothing.

Americans do not plan to spend money received from their tax refunds or saved thanks to lower gas prices in a sign that aggregate demand remains depressed.

A new survey of over 1,000 Americans by Principal Financial Group showed that over half of respondents do not plan to spend their refunds on consumables, opting instead to save the money or invest it. A significant portion—35% of total respondents—said they will use the money to pay down debt, while a minority 18% said they would buy consumer products such as electronics, jewelry, and clothing.

At the same time, the survey found 40% of respondents plan to use saved money from lower gas prices on essentials such as groceries, utilities, and housing costs. A total of 31% plan to pay off debts with the savings, and 23% plan to save the money.

The survey suggests Americans hesitate to spend out of caution, with 44% of worker respondents saying they are “cautious” about the economy, a sharp rise from 35% saying the same thing about the economy a year ago.

Mixed Responses

The survey is the latest in a number of indications that Americans are bucking conventional economic theory and refusing to increase their discretionary spending even when their discretionary income is rising. Economists debate the cause of this diverging behavior and analysts disagree on whether this is good or bad for the U.S. economy in aggregate.

While conventional Keynesian economic theory would argue that a savings glut will both depress returns on investments and cause lower economic growth, some suggest that this form of private austerity is a healthier and sustainable economic position. “The economy would benefit from increased consumer spending, but it is encouraging to see Americans are making prudent decisions with their money,” said Luke Vandermillen, vice president of Principal Financial Group.

Highest Savings Rate

The survey confirms recent data points that indicate higher aggregate savings in the United States. At the end of March, a new report by the Commerce Department showed personal spending rose only 0.1% while incomes rose 0.4%, indicating Americans are choosing to save whatever extra income they are earning. December and January’s spending rates fell, while incomes rose in both months at rates roughly in-line with the rate found in the March report.

A survey conducted in early December by CNBC, a financial news outlet, found only 8% plan to spend more of the money they saved at the pump on other discretionary items. The most popular response was saving more, at 13% of respondents, while 12% said they would pay down debt with the money they saved at the pump. That survey, of 803 respondents, criticized at the time, as some analysts suggested people tend to give the more “responsible” answer in survey questions about spending, but subsequent data has confirmed these respondents may have been honest in disclosing their savings plans.