Less is More

The trite architectural adage that is the subject of this blog posting can be aptly applied to a phenomenon that is gaining traction in the current recession: namely, the American consumer is spending less and saving more for the first time in decades.

The point was driven home for me this weekend while I was tidying up my desk at home and came across an interesting bit of personal history. I found a savings account book from the Waltham Savings Bank, dated 1955. It was my first recorded bank transaction, and showed me opening a savings account with a deposit of one dollar. I was eight years old. As I recall, my grandfather, George Davis, encouraged me to save the money I had earned from shoveling walks in our neighborhood during the winter and went with me to the bank to guide the process. He was a prominent Boston attorney and I believe that he was also on the bank’s Board of Directors. The account, of course, earned interest, and I soon learned that the more money I saved the more interest I earned.

This morning I opened my email and came across an article by Carol McMullen which recently ran in the Boston Herald, entitled The Frugal American Consumer: Permanent or Temporary? Carol is the President of Eastern Wealth Management at Eastern Bank. In the article she points out that the savings rate of the average American was nearly zero at the beginning of 2008. When the recession hit home for many people later that year, the savings pattern changed abruptly and at the close of the first quarter of 2009 the rate is nearly 5%. That sounds pretty good until you compare it to the savings rate in many Asian countries, which exceeds 20% in some cases. Mike Hebert, our firm’s investment advisor pointed out the other day when he met with our Executive Committee that Americans have never really been very good at saving. You’d have to go back to the mid 1980s to see our savings rate at 10%. But, according to Carol, it looks like we might be headed back to that level after more than twenty years of easy credit and profligate spending.

It is ironic that the world’s economy since 1985 grew largely on the back of the American consumer’s insatiable appetite for goods and services. And, now that we are saving more and spending less, it appears that we are not able to shoulder the burden of stimulating economic recovery, at least not exclusively. Carol suggests better balance, with Americans spending less and the Chinese, for example, spending more. The inescapable reality for American businesses is simple: We must all, TRO JungBrannen included, commit ourselves to providing exceptional value for the services and goods that we provide, both here and abroad, if we expect to compete favorably for the attention of the increasingly frugal and discriminating consumer.

I think I will call Waltham Savings Bank and open another savings account. My grandfather would approve!