Turns out your decision to get a fun piggy bank and start putting those pennies away could be causing the economy harm. That's right - you can put lipstick on that piggy bank but it's not going to help the economy. It may actually hurt it.
It's known as the Paradox of Thrift.- -saving may be good for you as an individual--reduction of personal debt/insomnia/stress/angry calls from creditors --- but for the overall good of the economy--having people save more money is like putting lipstick on a pig.
Personal saving as a proportion of U.S. disposable income rose to 2.8 percent in November compared with zero back in April, but remain well below the 10 percent range it occupied back in the early 1980s.
In fact, the shift from consumption to saving will be a crucial factor in determining the pace of the country's economic recovery, which many economists see gradually taking shape in the second half of next year.
If shock over the housing and stock market's losses sends the savings rate all the way back to the 11.2 percent notched in 1982, after the United States had endured two painful back-to-back recessions, it will prolong the current downturn.
That would also illustrate what the influential British economist John Maynard Keynes called the 'paradox of thrift'.
This described how the personal virtue of saving for the future becomes a collective ill if everyone does it at the same time, causing domestic demand to collapse and hurting everyone's savings because this slows the entire economy.
Retailers are saying there is an increase in sales of piggy banks and personal safes.
While there isn't an statistical data on the increase in piggy bank sales, Amazon is seeing a significant up-tick on the sales of personal safes. Recently one of the safes ranked a modest 2.755 in sales. Today it's ranked at 260.
So if one of your New Year's resolutions was to spend less and save more, you might want to think about breaking that resolution sooner rather than later.
Image Credit: Flickr Member Jeff Kubina
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