Why is everyone saying how desperately we need to save money “in this economy”?
"You ask a few different, though not unrelated, questions. Everywhere you turn today, you hear   people talk about how much they need   to save or how important it is to find   a good deal on things ""in this   economy"". They use phrases like ""now   more than ever"" and ""in these   uncertain times"". It seems to be a lot   of doom and gloom. Some of this is marketing spiel.  You may notice that when the economy goes south the number of ads for the cheaper alternatives goes north.  (e.g. hair clippers, discount grocery stores, discount just about anything)  Truth is, we should always be looking for ways to save money on goods and services we purchase.  The question is, what is acceptable to you for your desired lifestyle.  (And, is that desired lifestyle reasonable for your income, age and personal situation.)  Generally speaking, the harder times are the more we find discounted/cheaper alternatives acceptable.   Is there really a good reason that   people should be saving more than   spending right now? How much you are putting away is a personal matter.  I can still remember my dad griping whenever he couldn't save half of his paycheck.  That said, putting away half your paycheck may lead to a rather austere lifestyle.  This, of course, depends on the size of your paycheck and your desired lifestyle.  You could be raking it, living simply and potentially put away more than half your income with relative ease. If you have a stable job, and a decent cash reserve, is it anymore ""dangerous"" to make a large purchase now than it was seven years ago? Who knows?  Honestly, no one.  Predicting the future is a fool's errand.  (If you are interested in reading more on this view point, I suggest The Black Swan.) You mention the correct approach in this question.  Ensure that you have liquid assets (cash or cash equivalents, i.e. money that you can draw on immediately and isn't credit) which covers at least 3-6 months of your necessary expenses (rent/mortgage, bills, car payments, food).  (There is no reason that you couldn't try to increase this to 1 year, especially ""in this economy."") You should also strive to have money available for emergencies that don't necessarily include loss of income.  Of course, make sure you're putting away for retirement, as appropriate for your retirement goals.  After that should come discretionary items, including investing, entertainment, the large purchase you mentioned, etc.   You should never use money that you may need immediately (5-10 years) for investing.  This doesn't necessarily include the large purchase you are contemplating.  For example, if you are considering purchasing a home, the down-payment may be one of the items for which you need money in the ""immediate"" future. Is it really only because of unemployment numbers? This is probably the big one that is the focus of everyone's attention.  That said, the human attention span is limited.  We have a natural need to simplify things.  This is one of the reasons that we tend to focus on a few, hopefully important, things.  However, the unemployment numbers are not that the only thing of concern.  Credit is still pretty hard to come by these days.  The overall economy is still hurting, even if we are technically no longer in a recession.  There are also concerns about U.S. government borrowing, consumer spending, recent trucking numbers, etc.  (It may not be obvious, but trucking is used as a barometer of economic activity.  If there aren't as many trucks carting goods across the country, it probably means that there is less economic activity.)  The headline number these days is unemployment, as most census workers have now been returned to the pool. To answer the overall question, we should always be saving money, in good times or in bad.  Be that by squeezing more value out of our purchases or by putting some money away.  We should always try to reduce our risks, by having an emergency ""cash"" cushion.  We should always be saving for retirement.  Truth be told, it is probably more important to put money away in good times, before the hardships hit." As you point out in your question your risk level is personal.  If you really believe your job is stable there is no more risk.  However the overall evidence is that most jobs are less stable, and if you do lose your job you're likely going to be out of work for a while.  One thing to consider though is that if you have planned on emergency credit in the past, that option is not really viable anymore. "I would add to the other excellent answers that another factor besides just high unemployment numbers is the fear people have regarding the ""financial"" aspects of the country, that is the value of stocks and the value of the dollar.  When the economy is sluggish it means people aren't buying enough, therefore companies aren't making enough, therefore their profits are too low and people start to divest from them, and stock prices drop.  Or even the fear of this happening can induce people to sell off shares.   The point is, people are worried ""in this economy"" because if--due to unemployment, low spending/consumer confidence--the stock market crashes again as it did in 2008/09, that represents a lot of savings lost, e.g. 40-50% of what one was counting on to retire with, particularly if you panic sell at the bottom.  Now suddenly it's as if you had a huge robbery, and you will have to work longer into your retirement years than you'd planned.  Similarly, if, due to monetary policy, the U.S. inflates the dollar, what one saved for retirement may not be sufficient.  (These arguments are true for shorter periods than just one's retirement, but just taking that as an example). So it's not just unemployment that is worrisome ""in this economy"".  This said, I agree with George Marian that one ought to be careful and plan well regardless of the winds of the economy.  I guess for most people (and companies), though, ""in this economy"" means they can't get away with the kind of carelessness they might have during a boom." It's all about risk. In 1990, expressing the idea of the US defaulting on debt payments would result in you being labelled as a crank.  Yet in 2011, the President and Speaker of the House played chicken with the credit of the United States, and have a date to do it again in December 2011. Saving some money for the future is a good idea.  But how much to save is a tough question.  I retired with a small fraction of what the experts said I would need.  Three years later, I can confidently say I did not even need what I had saved. This was called Financial repression by Edward S. Shaw and Ronald I. McKinnon from Stanford (https://en.wikipedia.org/wiki/Financial_repression). Financial repression is the situation, when government is stealing from people, who rely heavily on saving, rather then on spending. Meaning that your saving rates will be a lot worse then inflation rate. Financial markets are artificially hot and interest rates artificially low (average historical interest rate is 10%). This could be a possible predictor state to hyper-inflation.
Who says that both parents have to work?  Also, why would you include that as an opportunity cost when a parent staying home can and often does save money from work clothes, lunches out, extra gas, car insurance for a second car, not to mention paying for and repairing a second car.  In the end, when I did my analysis for my own life, if I worked full time, I was going to be in debt to keep working.  My actual per hour pay when taking all of these things into account was less than $1 an hour. That doesn't even take into account daycare, days off of work for doctor visits, or anything else.  It is actually much cheaper for a woman to stay home and be employed in the home economy when she is not making at least $10 to $15 an hour depending on where she lives.    If my husband worked and I diligently tried to save money in other areas we were not currently saving money in, I would actually be earning my keep through home employment.  Things like sewing clothes with materials found, canning foods, baking, gardening, raising our own milk and eggs in small amounts, and recycling everything instead of tossing and buying new reduced our cost significantly.  Look even Elizabeth Warren says in this economy, that low skilled workers with less than a Bachelor's that want to have children would be better off doing it this way because of the price of everything.  It is tantamount to turning everything we have been taught on our heads, but it is true if you run the numbers. "- So some time goes by and people start catching onto this system of credit-worthiness, and farmers and fishermen and so on start to realize that they can get better value for their IOUs by demonstrating credibility. People with shakier reputations or dubious prospects may not be able to ""issue money"", or might only be able to do so at very high ""interest"". E.g., a new farmer with no track-record might have to promise me twice as many potatoes in exchange for a deer haunch, due to the risk that I might never see any potatoes at all.   - This obviously gets very messy fast, as different apple- and potato-certificates have different values depending on whether they were issued by Bob or Jane, and everyone has to keep track of and evaluate whose future apples are worth what.   - Some enterprising person, maybe the merchant who runs the trading-post, comes up with the idea to just issue one note for all the farms in town. He calls a meeting with all the farmers, and proposes to have the town priest keep a book of certificates and so on, and the farmers will get notes just like everyone else in exchange for the crops they contribute to the pool, and the merchant will keep a cut of the crops with which to hire some accountants and farm-surveyors to estimate the total crop yields across town and so on.   - Everyone agrees (or at least, enough farmers agree to kind of force the other ones to get on-board if they want to participate meaningfully in the town economy), and we now have something like a central bank issuing something like **fiat currency**: that is, currency whose value is ""decided"" by some central authority, as opposed to the kind of straight-up exchange certificates that can be traded for an actual apple from the issuer, for example.  - Now we have something that looks a lot like a modern monetary system. The town can set up audit committees or whatever, but the idea is that there is some central authority basically tasked with issuing money, and regulating the supply of that money according to the estimated size of ongoing and future economic activity (future crop yields).   - If they issue too much money, we get inflation, where more apple-certificates are issued than apples grown, and each apple-note ends up being worth only three-quarters of an apple come harvest-time. If they issue too little currency, economic activity is needlessly restricted: the farmers are not able to hire enough workers to maximize crop yields and so on, the hunter starts hunting less because his deer meat is going bad since nobody has money to buy it, and so on.   **At this point, you may be asking, ""Why the hell go through all this complexity just to trade apples for deer and shoes? Isn't this more trouble than it's worth?""**   The answer is because this is a *vastly* more efficient system than pure barter. I, as a hunter, no longer need to trade a physical deer haunch for a bushel of apples to carry over to the shoemaker in order to get shoes. You, as an apple-farmer, can hire workers *before* the crop is harvested, and therefore can grow more, and your workers can eat year-round instead of just getting a huge pile of apples at harvest-time to try and trade for for whatever they will need for the rest of the year.   So back to money...  The thing to remember is that all throughout, from the initial trade to this central-banking system, *all of this money is debt*. It is IOUs, except instead of being an IOU that says ""Kancho_Ninja will give one bushel of apples to the bearer of this bond in October"", it says **""Anyone in town will give you anything worth one bushel of apples in trade.""**  The money is not an actual *thing* that you can eat or wear or build a house with, it's an IOU that is redeemable anywhere, for anything, from anyone. It is a promise to pay equivalent value at some time in the future, except the holder of the money can call on anybody at all to fulfill that promise-- they don't have to go back to the original promiser.   **This is where it starts getting interesting, and where we can start to answer your question...**  (for the sake of simplicity, let's stop calling these notes ""apple certificates"", and pretend that the village has decided to call them ""Loddars"").   - So now you're still growing apples, but instead of trading them for deer-haunches and shoes, you trade them for Loddars. So far, so good.   - Once again, you want some meat, except harvest time hasn't come yet so you don't have any Loddars to buy meat with. You call me up (cellphones have been invented in this newly-efficient economy), ""Hey otherwiseyep, any chance you could kill me a deer and I'll give you ten Loddars for it at harvest-time?""  - I say, ""Jeez, I'd love to, but I really need all the cash I can get for every deer right now: my kid is out-growing shoes like crazy. Tell you what: if you can write me a promise to pay *twelve* Loddars in October, I can give that to the shoe-maker."" You groan about the ""interest rate"" but agree.   Did a lightbulb just go off? **You and I have once again *created Money*.** Twelve loddars now exist in the town economy that *have not been printed by the central bank.* Counting all the money trading hands in the village, there are now (a) all the loddars that have ever been printed, *plus* (b) *twelve more* that you have promised to produce.   This is important to understand: I just spent money on shoes, which you spent on deer meat, that *has never been printed*. It's obviously not any of the banknotes that have already been issued, but it's definitely real money, because I traded it for new shoes, and you traded it for a dead deer.   - Once you and I and others start to catch on that this is possible, that we can spend money that we don't have and that hasn't even been printed yet, it is entirely possible for a situation to arise where the total amount of money changing hand in the village vastly exceeds the number of loddars that have actually been printed. And this can happen without fraud or inflation or anything like that, and can be perfectly legitimate.   - Now, what happens if another wildfire hits your orchard? **Those twelve loddars are destroyed,** they are gone, the shoe-maker is twelve loddars poorer, without spending it and without anyone else getting twelve loddars richer.   The money that bought your deer and my shoes has simply vanished from the economy, as though it never existed, despite the fact that it bought stuff with genuine economic utility and value." "I think you are right. Even given both the randomness of Monopoly (roll of dice, shuffle of chance/community chess cards), and the skill differentiation between players (my model took this into account) it is deterministic enough that once the game is played for X interval, the randomness cannot overcome the previous outcomes. In fact, what we actually see is a hardening of those outcomes over time (ie: just continuing to play the game exacerbates the inequality as the previously handicapped player keeps landing on property already owned by the previously un-handicapped players).  I think the conclusions are completely based on how deterministic you think our capitalist/democratic system is - or, more simply, how well Monopoly serves as a metaphor for our economy.   I think we can answer that question (or at least determine how we individually feel about it) by raising a simple thought experiment.  Imagine you live on a road where there are 4 families and the parents sit down to play Monopoly one night. 3 of the families are white and the parents are racists and set the rules unfairly against the 4th family. After 2 hours of play, the adults from the 4th family are losing miserably and everyone decides to go home. The next morning, before the adults wake up, the kids from each family decide to play Monopoly together as well. But this new generation isn't racist at all. They announce ""the rules will be the same for everyone from here on out""! The children from the black family are relieved and begin to clean up the board from the previous night and start the game over. But the other 3 families object - ""wait, no, my family earned that! We start where we left off!"".  It seems to me this is very similar to how our economy works. The vast majority of our wealth within generations is spent on raising the next generation (from the homes, food, health, and clothes we purchase to better educational opportunities, and finally direct-wealth transition through inheritance or at least financially sufficient parents that don't require investments from grown children in retirement).   I think it is a plausible theory that doesn't require us to say that anyone is racist or anyone is inferior. It would also explain phenomenon like this:  https://www.washingtonpost.com/news/wonk/wp/2017/09/28/black-and-hispanic-families-are-making-more-money-but-they-still-lag-far-behind-whites/" The long term is a series of short terms and the best thing we can do for for it is to improve the short term. There is absolutely no benefit to self-imposed economic hardship in the present.  I'm not saying there is slack of money, I'm saying there is *lack* of money. There is slack in output capacity. We are producing less than we're capable of and as a result, real resources and labor are idled. As policy, this is inexcusable.  &gt;People who are saving their money don't have it stored under their mattress. Instead they have it saved in a bank that is in turn being loaned out at the lowest rates in history.  Savings are a demand leakage. They are *unspent* income. If that leakage isn't offset, demand falls and the effect on the economy is contractionary. "this is purely psychological.  most people are absolutely terrible at keeping track of their finances.  to the point where they will use multiple separate accounts for different types of spending or savings goals.  when the average person tells the banker they want an account for the money they are saving, they get handed a ""savings account"" and don't bother to question how it is different from a checking account." "There's a lot wrong with your explanation and analogy.  I believe you are trying to refute otherwiseyep but you haven't really.  You have described the ""work"" or the ""step in the money-building process,"" that was happening *before* otherwiseyep's scenario.  otherwiseyep's scenario begins at ""the apple farmer wants to get some meat but the orchard hasn't matured yet,"" implying that apples have in fact been traded for meat in real time.  Secondly, I would much prefer a person build their own explanation and analogy than build onto someone else's while thinking it insightful in any way.  Lastly, you went all Paul Krugman on us and used the word ""costs of production"" which I *think* you mean to be ""work"" but you did not build that analogy.  When you went ""Paul Krugman,"" you jumped a HUGE boat.  Krugman talks about very advanced economics and some of his stuff is political in nature.  At no point did you build any specific analogies to Paul Krugman's many theories.  You so completely lost me with that, I almost went into negative integers.  Edit:  otherwiseyep had been misspelled as otherwiseyes.  Slightly laughable." "Well they've ""created"" what $5trillion in the last few years?  Many people are arguing that they'd created too much not too little.  That money, the new debt being issued, just isn't being very effective and we see people/banks/corporations hoarding cash and bonds instead of investing and creating new wealth.  If everyone went out and spent their money and invested in new factories, farms, malls, or whatever, we would see tons of new jobs and the Dow at 20,000 but that isn't happening for whatever reason." Recessions are prolonged by less spending and wages being 'sticky' downward. My currency, the 'wallark', allows a company to pay its workers in it's own scrip instead of dollars which they can use to purchase its goods, thus reducing it's labor costs and allowing prices to fall faster. While scrip in the past purposely devalued to discourage hoarding, the wallark hold's it's purchasing power. The difference is, a worker can only use it to purchase their company's good *on the date the wallark was earned or before*.  In other words, each good is labeled with a date it was put on display for sale, if  a worker earns scrip on that same day, they can trade the scrip for that good, or any good that was on the shelves on that day it was earned *or before that date*. Any good that comes onto market after the date that particular wallark was earned cannot be purchased with that wallark(which is dated), and must be purchased either with dollars or with wallark that was earned on that good's date or after. This incentivizes spending without creating inflation, and allows costs to fall which helps businesses during rough economic times.  Please feel free to read it, and comment on my site! Any feedback is welcome!