Monday, January 10, 2011

Households Paid Down Debt Instead Of Adding To Savings Accounts During Recent Recession

During the recent recession and financial crisis, households paid down debt instead of putting the extra cash into savings and retirement accounts.

From Federal Reserve Bank of New York Staff Reports, January 2011, "Household Debt and Saving during the 2007 Recession" by Rajashri Chakrabarti, Donghoon Lee, Wilbert van der Klaauw and Basit Zafar:
increase in saving―at least in 2009―did not materialize through an increase in contributions to retirement and savings accounts. If anything, such contributions actually declined on average during that year. Instead, the higher saving rate appears to reflect a considerable decline in household debt, as households paid down mortgage debt in particular. At the end of 2009, individuals expected to continue increasing their saving and paying down of debt, which is consistent with what we have observed so far in 2010. [Empahasis added]
Read the full research paper here.

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