It's obvious that consumers aren't completely confident with the economy right now. It's easy to see why, too. Many are still feeling the bruises from the recent financial crisis, and it doesn't help that the media keeps emphasizing the horrible unemployment rates and the trouble in Europe either. On top of that, there are the upcoming presidential elections to add to the mess.

In scary and confusing times, most consumers tend to reduce their spending out of fear. This makes sense, most of us are still trying to find and secure "financial freedom" -- but some economists believe this type of "retraction" from consumers only makes the economy suffer even further, and they encourage consumers to keep spending. Looking into that theory, should we really sacrifice our saving habits for the greater good of the economy?

"Businesses Are Flush with Cash"
Jeffrey Rosen, chief economist of Chicago-based research firm Briefing Research downgraded his predictions of future economic growth from 2% to 1% a few months ago, and he based this change on the growing uncertainty dominating consumers today. "If consumers and businesses can get over their fears, there are opportunities for growth," he said. However, he stated more facts that give consumers reasons to save rather than to spend.

He said that the average consumer debt-to-asset ratio is "1% above the long-term trend," and that "businesses are flush with cash." In fact, Rosen said that businesses have been sitting on almost $2 trillion in cash since the end of The Great Recession. Although the economy may not grow as quickly as it has in the past, these are not good reasons for consumers to sacrifice their saving habits. Should they do this so the economy can grow more than 1% and businesses can make even more money? These arguments are not strong enough.

Consumers should continue to focus on building up their savings, especially since "the long-term trend" of our debt-to-asset ratio hasn't been the best in the last few years, and Americans are still "above" this trend anyway. Not to mention the fact that businesses are currently sitting on a ton of cash. With this year's elections coming to a conclusion shortly, there have been clues that give consumers even more reasons to save as much as possible.

Keep More of Your Money
With the presidential elections going on, there's a lot of talk about the U.S. deficit, the levels of government debt that we all have to be concerned with and the upcoming fiscal cliff dilemma. Although there are different opinions on how the government can work on fixing these problems (including spending cuts across the board), some fear that an increase in taxes will be one of the main ways for Americans to get out of this debt hole.

Unfortunately, this may be true. The government might have to take more of consumers' hard-earned income to dig itself out of debt, and consumers probably won't be able to do too much about it. What consumers can do, however, is keep as much of their own money as possible. Since the government will continue to take its share of people's incomes anyway (and might even start to increase its share), consumers are already putting money into helping the economy, so they shouldn't sacrifice their saving habits based on concerns for the economy. Americans should focus on paying themselves first so that they can continue to keep as much of their money as possible, both for their long-term and short-term goals.

Save for Now, Save for Later
When thinking about saving, retirement is usually the first thing that comes up, and it can be easy to see why this is a hard concept to grasp. Not only is the task of saving a difficult habit to stay disciplined at, but saving for a time that may never come can sometimes seem pointless. Who knows how long we'll all live anyway, and why not spend it while we've got it, right? Even though there are probably many who have those same feelings, saving habits aren't only beneficial for individual retirement plans, they're beneficial for all life plans.

The amount of money one will need in his/her nest egg for a comfortable retirement is becoming an ever-so-complicated calculation. Many find it very annoying to have to think about retirement. However, keeping your money and putting it aside for something bigger is a large part of anyone's life. Not only will Americans need a good amount of passive income to fund their retirements, but they'll also need to save up for other short-term goals. Buying a house, supporting children, and vacations that we all deserve now and then all fall under that list.

The Bottom Line
Don't worry about the economy not growing as fast as it once did because we are still saving. Don't worry about government debts not getting paid off due to the slowing economic growth. The government is already taking part of consumers' income to put towards solving that issue. It is your responsibility as a consumer to build your own wealth appropriately so that you can achieve your most crucial life goals, and don't let anyone else tell you otherwise. Saving may be tough, but it is a necessary habit to stay true to.

Photo Courtesy of 401(K) 2012

Related Articles
  1. Retirement

    5 Reasons Millennials Lead in Saving for Retirement

    Say what you want to about millennials but the one thing they are doing better than any other generation is saving for retirement. Here's why.
  2. Economics

    The 2007-08 Financial Crisis In Review

    Subprime lenders began filing for bankruptcy in 2007 -- more than 25 during February and March, alone.
  3. Investing

    3 Small Steps to Maximize Your Investing Goals

    Instead of starting the New Year with ambitious resolutions, why not taking smaller manageable steps that can have a real impact.
  4. Investing

    7 Creative Ways to Save for an Early Retirement

    Take note of these out of the box steps you can take towards securing yourself an earlier, more comfortable retirement.
  5. Saving and Spending

    Saving $100 Now Is Better Than Saving $1,000 In 10 Years

    Learn why it is better to save $100 every year starting right now rather than $1,000 in 10 years, and find out the benefits of early saving and investing.
  6. Economics

    Lehman Brothers: The Largest Bankruptcy Filing Ever

    Lehman Brothers survived several crises, but the collapse of the U.S. housing market brought the company to its knees.
  7. Savings

    How to Save Your First $100,000

    Saving your first $100,000 requires the discipline to put money away and control your spending. But just remember – the savings get bigger as you go.
  8. Insurance

    3 Reasons To Get High-Premium Health Insurance

    Health insurance is expensive, which is why many people opt for the lowest-premium plan. But that may not always be the cheapest.
  9. Savings

    Building an Emergency Fund

    Do you have enough savings to cover the costs of unforeseen crises? We show you how to plan ahead.
  10. Home & Auto

    What are The Best Ways to Save on Moving Costs?

    Because buying a house isn’t cheap, funds might be limited during your move. So, to avoid additional stress, here are seven money saving tips.
RELATED FAQS
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. How does the trust maker transfer funds into a revocable trust?

    Once a revocable trust is created, a trust maker transfers funds or property into the trust by including them in a list with ... Read Full Answer >>
  3. Do negative externalities affect financial markets?

    In economics, a negative externality happens when a decision maker does not pay all the costs for his actions. Economists ... Read Full Answer >>
  4. What is the difference between disposable and discretionary income?

    According to the Bureau of Economic Analysis, or BEA, disposable income is the amount of money an individual takes home after ... Read Full Answer >>
  5. What are the major laws (acts) regulating financial institutions that were created ...

    Presidents George W. Bush and Barack Obama, in conjunction with Congress, signed into law several major legislative responses ... Read Full Answer >>
  6. What are the similarities and differences between the savings and loan (S&L) crisis ...

    The savings and loan crisis and the subprime mortgage crisis both began with banks creating new profit centers following ... Read Full Answer >>
Trading Center