3 Reasons Americans Are Saving Less in 2023

It's important to have savings for a variety of purposes, like emergencies and retirement. But data from the U.S. Bureau of Economic Analysis reveals that consumer savings rates are below their historical average. 

In February, the average personal savings rate was 4.6%. That’s well below the average yearly rate of more than 8%, according to the data, which traces all the way back to 1959. 

If you're wondering why Americans are saving at a lower rate than usual these days, well, there may not be a single reason. Rather, that trend may be attributed to a number of factors, including the following.

1. Inflation has remained frustratingly high

Inflation levels have cooled steadily since peaking in mid-2022. But living costs are still higher than usual. 

In April, annual inflation was measured at 4.9%, as recorded by that month's Consumer Price Index. That's well above the 2% level of inflation that's considered a more normal or tolerable rate.

Now, imagine you're spending more money on everything from groceries to utilities to rent. Wouldn't it stand to reason that your savings might take a hit? Now multiply that by the broad U.S. population, and it's no wonder savings rates are lower.

2. Borrowing costs have skyrocketed

The Federal Reserve has been pushing to cool inflation, and one tactic it's employed to do so is to raise interest rates. The Fed doesn't set consumer borrowing rates. Rather, it oversees the federal funds rate, which banks charge each other for short-term borrowing. But when the Fed raises its benchmark interest rate, the cost of consumer borrowing tends to follow suit.

These days, it costs more money to borrow via a personal loan, auto loan, and just about any type of loan. And when consumers have larger loan payments they're on the hook for, it tends to lead to lower levels of savings.

3. The pandemic has changed a lot of mindsets

The pandemic changed the way a lot of people view money. Seeing as how many people lost loved ones fairly suddenly, more consumers these days may be of the mindset that they should spend freely and enjoy life while they can. And that, too, would explain why savings rates are on the decline. 

How to boost your savings in 2023

Just because savings rates have dipped on a whole doesn't mean you're doomed to save less in 2023. If you want to pad your savings account nicely, first, aim to stick to a tight budget. Limit your spending in non-essential expense categories, and do your best to seek out savings on essentials like food by taking advantage of supermarket sales.

Next, try to avoid borrowing money this year if you can help it. If there's a home improvement project you've been wanting to tackle and it needs to be financed, wait until next year. By then, borrowing costs may be lower.

Finally, spend money on the things you love, but within reason. If you have $200 left over each month after covering your essential bills, spend half, but put half in the bank.

It's not at all shocking that savings rates are on a decline. But you can still take steps to meet the savings goals you set for yourself.