Save up

The U.S. savings rate could rise as high as 6% in the wake of the deep national recession, according to a recent study by Allianz Group Economic Research.

U.S. households have experienced an unprecedented decline in net wealth from mid-2007 to early 2009, the study noted. The fall in share prices and collapse in home values had destroyed nearly $17.5 trillion of household wealth while at its worst in the first quarter of 2009.

With the stock market rally that began last March and the stabilization of house prices, some of these losses were made up by year-end 2009. Nevertheless, estimated losses still amount to $11-12 trillion and the ratio of wealth to income has fallen back to mid-1990s levels.

“We have witnessed a surge in the saving rate since early 2008, up to an average of 4.6% in the 2009, said Allianz SE Chief Economist Michael Heise. “We anticipate that products, such as mutual funds, annuities and equities, will benefit from this change.”

KEY STUDY FINDINGS
• A sharp decline in US households’ net worth could trigger a lasting increase in the saving rate up to 6%-6.5%, potentially significantly expanding the need for guaranteed and safe savings solutions.

• An estimated $700 billion per year could be saved in U.S. in the next 10 years.

• The overall level of household savings in the US to rise by approximately $500 billion annually. With disposable income currently equal to roughly $11 trillion, this suggests that the saving rate is set to climb to 6-6.5%.

• In 2008, financial assets of private households declined by 17.8% over the previous year reflecting mainly the fall in equity markets.

• Cash holdings by U.S. households are still high compared to pre-crisis levels. Checkable deposits stood at $332 billion at the end of the third quarter 2009 compared to only $104 billion in the first quarter of 2008.