Save or spend during a recession? - WALB.com, Albany News, Weather, Sports

Save or spend during a recession?

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By Len Kiese - bio | email  

ALBANY, GA (WALB) - The U.S. economy is based largely on consumer spending and these days the recession has many of us spending less and saving more. It's a consumer catch 22. Saving more may be good for you but not so good for the economy.

The 'R' word is the main topic for people these days--the recession. "Definitely," said shopper Divya Kishore, "across the country, that's what I've been seeing."

It's a recession pitting two 'S' words against each other--saving versus spending. Kishore says it comes from uncertainty. "As far as long term investments, it's a little bit trickier these days. You don't know exactly which parts of the financial market are stable," said Kishore.

So for lack of stability, her family is scaling back and spending wisely. "Your basic necessities, groceries things like that," said Kishore.

"What's happening now is that people are feeling more insecure about their job situation and about tomorrow," said Aaron Johnson.

Today the trend seems to be hold on to what I have now for fear of tomorrow. The government reports a sharp rise in the percentage of American's saving money. Darton Assistant Professor of Economics Aaron Johnson says that along with more people paying down debt has an effect on the economy.

"As economists, we see that short-run having a negative effect on the economy because the more money spent paying down debt, that's less money being spent on big ticket items and going out to eat and those are all drivers to the economy," said Johnson.

"I believe that individuals should first and foremost, save money," said Financial Advisor Sammy Smith, Jr.

Smith says he understands why people are saving more.  He advises it along with having a healthy cash reserve. "We talk about spending to stimulate the economy. I believe that that's going to happen naturally. If you own anything, you're going to spend money eventually, planned or unplanned," said Smith.

But Smith says individuals can also help out the economy by investing some extra money into the volatile stock market a little at a time. "And then when you feel a little bit more comfortable and once the economy does start showing some signs of life, you can start putting more in," said Smith.

The economy definitely isn't in good shape. "It's pretty terrible and it seems like we're going to have to do a lot of work to get it back on track," said Kishore.

Economists hope consumers find the right balance of saving and spending to prevent the recession from deepening even more.

American's savings rate rose to nearly three percent in the last three months of 2008, up from less than one percent a year ago. At the same time, consumer spending dropped for six consecutive months in the second half of 2008.

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