Return of the Rainy Day Fund

A new Federal Reserve study is out, showing that Americans have adopted the mindset of those who grew up during the Great Depression. That means more savings, less debt and the potential return of the venerable rainy day fund. What does all this mean for the national debt and credit picture? The real dirt is in the details.

Let’s start with the numbers. The Federal Reserve Credit Report, released March 5, reports that total outstanding consumer credit declined from $2.56 trillion in the fourth quarter of 2008 to $2.46 trillion in the fourth quarter of 2009.

Overall, the Federal Reserve’s consumer credit number represents a 4.7% cut in consumer credit volume — or about $100 billion, from year to year.

There is some disturbing news, as well, from the Fed report. Revolving credit, which includes credit card debt, dropped in December by 11.7% to $866 billion. But non-revolving credit, which includes car loans or student loans, is still on an upward spiral, rising 5.2% to $1.59 trillion.

The latter trend could be a temporary one. Sean Maher, an associate economist at Moody’s, says that revolving credit will soon join non-revolving credit in a downward trajectory — primarily because it’s tougher to get a loan these days.  “Consumers are still finding it tough to get credit, but there are some signs we’ve reached a bottom,” Maher reports. He expects that the consumer loan picture “will break even around the middle of the year — and we’re looking for a pretty quick rebound by the second half of 2010.”

On the surface, you’d surmise that Americans are increasingly determined to hike savings and cut spending — and you’d be right. Now that Americans have had a taste of what a depression may look like, and what their grandparents and great grandparents might have gone through back in the 1930s, suddenly the desire to spend isn’t so appealing. That’s why more and more banks are rolling out those old chestnuts like Christmas clubs and rainy day funds — Americans are once again learning that if they want something bad enough, they’re better off saving to pay for it.

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