Economic downturn has more folks stashing their cash

The Great Depression created a generation of Americans that abhorred waste and considered debt the devil's playground. Long after the economy recovered, they hoarded tin foil, saved little pieces of string and insisted on paying cash for their purchases.

Few economists believe this downturn will become another Great Depression. But the economic slump could have a lasting impact on Americans' savings habits, particularly young people who may be witnessing the worst economy they've seen in their lifetimes.

The personal saving rate, which measures how much people save out of disposable income, was 1.3% in the July-September quarter. Although that's low in comparison with other countries and a far cry from the double-digit percentages seen most recently in 1985, it's more than twice last year's rate.

Mark Zandi, chief economist for Moody's, predicts a year from now, the saving rate will top 3%, and will hit 8% in the next decade.

"This feels very much like 9/11. (That) was to our sense of security as this financial panic is to our sense of financial security, " Zandi says.

But other economists predict that once the economy improves, Americans will return to their shop-till-you-drop ways. And it's unclear how much Americans are cutting back.

A USA TODAY/Gallup survey conducted in early November found that only 32% of Americans are saving more as a result of the economic downturn. But the figures for young adults were much higher. Forty-four percent of Americans ages 18 to 29, and 39% of Americans ages 30 to 49 said they're saving more.

Younger Americans also say they're going to cut back on their holiday spending far more than those who are older, according to a recent survey from the Conference Board, a private research firm. Those ages 25 to 34 said they planned to cut their holiday gift spending to an average of $377 this year from $463 in 2007, a 19% plunge. Across all age groups, people said they planned to cut holiday spending by 11% to $418.

Bargain hunting

And those who are still spending are looking for deals. Business at The Encore — A Quality Resale Shop, a consignment store in Kennett Square, Pa., is up about 20% from a year ago, co-manager Trish Clarke says. Customers typically pay a third of what they'd pay at a retail store, she says. The holidays, she adds, "are typically busy, but this year, it's even busier than ever."

Marissa Coren, 27, a speechwriter at the United Nations, says she's saving because she doesn't believe she has any other choice. "I think people my age, if they've been awake, have been raised seeing that we probably can't rely on the government for Social Security, and certainly not for health care," she says. "That has been equal parts empowering and sobering."

While Coren lives in one of the most expensive cities in the world, she managed to put away $5,000 in a Roth individual retirement account. She saves money by bringing her lunch to work and walking instead of taking cabs.

Jonathan Parker, a finance professor at Northwestern University's Kellogg School of Management, says it makes sense that young people are focusing more on saving in the current economic environment. In part, that's because with retirement a long way away, some may be putting money aside to invest in the depleted stock market, knowing they can buy low, then wait for their investments to grow.

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