SAN FRANCISCO—The Money Anxiety Index increased to 84.7 in May – an increase of 43.7 points since the beginning of the coronavirus crisis in February of this year.
The increase in money anxiety corresponds to the drastic increase in personal saving rate, which reached 33% in April according to the U.S. Bureau of Economic Analysis. In February of this year, when the Money Anxiety Index was half of its current level (41.0), the personal saving rate was 8.2%, explained Dan Geller, founder of Analyticom LLC, which produces the Money Anxiety Index.
The strong link between higher level of money anxiety and greater savings is also evident in the enormous increase in deposit accounts throughout the banking system. Balances of liquid accounts (checking, savings and money market) have increased by double digits since the start of the coronavirus crisis, and banks and credit unions are now using scientific models to adjust their optimal pricing position to accommodate this influx in deposit money.
"We reported about the relationship between higher money anxiety and higher savings in our paper, Dynamics of Yield Gravity and the Money Anxiety Index,” said Geller, who co-authored the study. "We observed the same phenomenon during the 2008/2009 financial crisis, and have advised the Federal Reserve and the FDIC about the risk high money anxiety presents to the U.S. financial system and the economy overall."
At the Expense of Consumption
According to Geller, the unusually high level of personal saving, and the massive increase in banks and credit unions' deposits means that much of this money comes on the expense of spending and personal consumption. Since the U.S. economy is made up of 70% consumption, such a massive decrease in spending, due to an increase in savings, will push the U.S. economy into a recession despite improvement in the labor market, Geller said.
The Money Anxiety Index is a validated behavioral economics predictor. It measures actual financial behavior of consumers rather than subjective responses to surveys used by all other consumer confidence indices.