When the stock markets and housing values were soaring, certified financial planner James Bryan would plead with clients to set aside six months worth of take-home pay just in case of a job loss or a major home repair.
"I had that conversation many times during prosperous times, and often it didn't take hold," said Bryan, president of Bluestone Wealth Strategies in Edina. These days he doesn't have to work as hard to persuade those same people to postpone purchases and trim spending to build that cash reserve.
Take Kalli-Ann Binkowski, for example. A year ago, she didn't think twice about taking a trip to Ireland or financing a major purchase. But in recent months the 37-year-old science teacher from Blaine lived with a fridge on the fritz until she saved enough cash to buy one outright. And in December, she upped her savings rate.
"I feel like I want to put more in savings, because that's what everyone's talking about," she said.
Binkowski is part of a growing trend.
After years of negative or near-zero personal savings, the statistic tracked by the Bureau of Economic Analysis is soundly in the black. The reversal began when government stimulus checks designed to jump-start the economy were saved, not spent. In November, the number measuring Americans' personal savings as a percentage of disposable income reached 2.8 percent and is expected to rise throughout 2009. During the 1982 recession, the savings rate hit 11 percent.
Wells Fargo economist Scott Anderson expects that the savings rate will rise to 5 or 6 percent. His reasoning? The wealth effect, or in this case the lack-of-wealth effect. The nation's investors and homeowners are $8 trillion poorer than we were a year ago.
According to his calculations, housing and stock market declines cost U.S. households $5.3 trillion in lost wealth in the first three quarters of 2008. Factor in the horrible fourth quarter to get to $8 trillion.