Although many people are financially harmed by the coronavirus pandemic, banks and credit unions have seen a large increase in savings.
“When the pandemic hit consumers, our members started saving,” said Todd Lane, executive director of the California Coast Credit Union. “Personal savings rates in 2020 were double, almost double, compared to what we saw before the pandemic.”
This savings rate is measured as a percentage of your income that you save. Lane said the rate in 2019 was around 7%, but jumped to 34% in April last year before slowly falling. Last month, the CCCU recorded a savings rate of 13.6%.
Lane said the pandemic changed the way people used their money.
“They cut costs,” Lane said. “Discretionary consumption has indeed fallen. The same for travel, leisure and restaurants.”
Other domestic banks and credit unions had the same trend.
“Since the start of the pandemic last March, the Fed Mission’s credit union has seen record year-on-year growth in deposits, exceeding 20%,” Fed Mission Chief Financial Officer Doug Wright said in a statement. “Every time government stimulus checks are issued, we record strong deposit growth.”
Lane said many people have saved the first and second stimulus checks and are now spending the third.
“We haven’t seen such savings in many, many decades,” Lane said. “Consumers are delaying the purchase of this new car and have been very disciplined about using their credit cards.”
Both the Fed Mission and the CCCU told NBC 7 to see how people put savings as a priority, even putting that money into retirement savings accounts like the 401k or the Roth IRA.
And it’s not just stimulus checks. The pandemic seems to have changed people’s priorities.
“Whether our members received incentive funds or not, many of them have given priority to savings over the past year,” Wright said. “While we anticipate that part of these funds will be used as the economy opens up, we expect a large part to continue to be saved, based on past experience.”
Lane said that doesn’t mean people are good financially, but that their priorities have changed.
“We just don’t know yet what will happen,” Lane said. “Will they hurry up and buy consumer goods? Or will they keep them for the next rainy day?”
If you can, Lane suggests taking as much as you can for a rainy day. He recommends rule three when it comes to budgeting. This means that a third of your money goes to savings after supplies, a third to debts, and a third to personal needs and desires.
“Is consumer financial health really as good as that personal savings rate shows?” Lane asked. “I’m not convinced right now.”