It’s hard to say if it feels like 2020 was 10 years ago or just 10 days. For many, it’s been simultaneously the longest and the shortest year on memory — and with it has come both tough times and impactful lessons. Because along with all the banana bread baking, TikTok dancing, and Zoom partying, many Americans came face-to-face with their finances more than ever before.
Never Before Seen Savings
In the year since the onset of the COVID-19 pandemic in the U.S., we saw a rapid increase in the savings rates of Americans as many turned to cash as a safe harbor in the middle of an unprecedented economic upheaval.
In April 2020, the personal savings rate reached 33.7%, meaning that, on average, Americans dedicated a third of their income to savings. This is the highest savings spike in more than 60 years.
The surge in pandemic savings created what some called a “savings bubble.” Since its peak in April, however, we’ve seen it steadily deflate. It landed around 13.7% by year’s end, as spending among consumers surged during the holiday season.
Is the spike here to stay?
Though it’s too early to say whether folks will stick with their enhanced savings habits long into the future, signals in early 2021 suggest consumers are more cautious, growth-focused and thinking long-term with their money than they were a year ago.
At Ally Bank, we’ve already seen a 20% increase in new Online Savings Account openings, higher-than-normal numbers of transfers from savings into investment accounts, and more customers setting intentional savings goals using our Buckets tool.
And among consumers nationwide, many plan to use economic safety nets like the most recent round of stimulus checks and a more generous child tax credit to pad their savings.
In a recent survey by Ally and CivicScience, more than half of those expecting to receive an additional financial boost from the child tax credit said they would save it and more than one-third said they wanted to invest it.
Likewise, 50% of respondents said they would save their $1,400 stimulus payment while another one-in-five said they would invest it.
Reopening the Country, Reopening Wallets
Here are tips for folks wondering what to do with additional funds as the economy reopens and the White House promises to have enough vaccines for every adult by the end of May.
Don’t be afraid to multi-task. A cash windfall like a stimulus payment or child tax credit (slated to be doled out in monthly installments vs the standard annual payment) may help you move the needle on a couple different priorities. You could tuck away a portion in your savings account and take another portion to pay down any consumer debts like credit cards.
Avoid the urge to “revenge spend.” After a year in lockdown, it’s understandable to indulge in fantasies of summer baseball games, attending a concert with friends or even splurging on a vacation to the beach. Because so much is still uncertain about the economic recovery and how long certain industries will need to bounce back, it could be wise to set aside some funds for specific high-priority savings goals and sock away the rest for emergencies. Use our Buckets feature, for example, to name up to 10 savings goals within a single savings account and set up automatic transfers to the account to put your savings on auto-pilot.
Align your saving and spending with your core values. Over the past year, it’s possible that you’ve gained a better understanding of what really matters to you and what is worth spending on. Use that same instinct to drive your savings habits as well. The optimism you’ll feel knowing that your savings goals will truly bring joy to your life will help keep you on track.
Give yourself a fresh budget. If you haven’t already taken a new look at your budget to see where your spending has decreased or increased as a result of your new lifestyle, now is a great time to start. When you get into the numbers and see exactly how much you have leftover after essential expenses you can understand how much is left over for savings goals. You’re also less likely, perhaps, to spend money on arbitrary impulse purchases that might feel good in the moment but don’t actually align with your values or get you closer to your savings goals. The 50-30-20 budget style is a great place to start.