In the most recent months during the economic recession Americans have begun to save their money once again. For many years the personal savings rate was on the decline, and it actually fell into the negative territory for a short period in 2005 and 2006. How is the personal savings rate calculated? It is calculated by subtracting taxes and spending from personal income. During the period of 1959 to 1984 Americans never had a personal savings rate below 7.2%, but since that time it has never been back to 7.2%. The majority of the last ten years the rate has hovered around 2% or so.

While the American government, as well as other governments around the world are certainly hoping that you will go out and spend you money now, there is no doubt that it is wise to build up your savings. The sad thing is that it shouldn’t take a recession the magnitude of the one we are currently experiencing to get people to understand that they need to keep their spending under control.

One of the most important things that any individual throughout the world can do is to remember the lessons we are learning today and continue to apply them in the future. Quite frankly when consumers continue to spend above their means there is bound to be a bad ending for the global economy. Historically it has been during periods of booming economic growth that individuals decide to step out and spend more than they really should be, but I certainly hope that this recession teaches the lesson that saving money isn’t simply something to do during a recession. Saving your money is something that needs to be done constantly and while it can be a very tough thing to do, those who do it will end up ahead in the long run.

It’s the typical catch 22, as personal savings rates increase it prolongs the economic recession, but saving your personal finances is certainly the right thing to do in the long run.  The truth is while it may not be good for a quick recovery for the overall economy, an increase in the personal savings rate of Americans is good for the long-term health and stability of our economy.

What exactly is the personal savings rate? It’s just like it sounds actually, it is personal income minus expenditures. In the most simple terms your own personal savings rate is what you make minus what you spend.

The personal savings rate of the average American has been alarmingly low in recent years. In fact, in late 2005 and early 2006 during the mortgage boom Americans were actually spending more than they were making. This certainly didn’t help the current situation we are now in. In recent months the personal savings rate in America has grown up to a level of 2.8% in November. This is still a number that is quite low, but it is certainly an improvement from the below 1% or below 0% that had become the norm a couple of years ago. To put the current savings rate into perspective, during the 1950′s the average personal savings rate was about 10 or 12%. Clearly Americans were more frugal with their money now than they are now.

While a recession has many terrible repercussions, one benefit will likely be that of the personal savings rate increasing. Over the long run this will allow more Americans to have more capital to invest and be much less reliant on debt. After all it was reliance on debt that got so many companies into horrible trouble on Wall Street. My hope is that Americans will learn their lesson and increase their personal savings rate and have that rainy day fund that is so essential.