Energy prices are down in recent months due to a massive global over-supply. This has resulted in a number of benefits for consumers, including lower cost of gas at the pump, reduced home heating costs during the winter months, as well as cheaper travel, shipping, and food prices.
Francisco Blanch of Bank of America Merrill Lynch argues that if energy prices continue with this trend, it “will push back $3 trillion a year from oil producers to global consumers, setting the stage for one of the largest transfers of wealth in human history.” All this savings leaves the Average Joe with a bit of extra cash in his pocket. Generally economists look at this as a positive force for consumer spending because, as the logic goes, the more money people have, the more money they will spend. This uptick in spending acts as a catalyst for continued economic growth.
However, consumer spending has remained relatively static despite having an increased amount of discretionary income. Frugality is winning the day and many people are deciding to hold on to their extra cash. So, where’s the money going? Answer: in the bank.
This perceived imbalance has been fuel for the recent short-term volatility. After wading through the waters of the Great Recession, investor sentiment still leans pessimistic and investor behavior is much more cautious than it was in past seasons. Though, one can surmise that an increased amount of savings in people’s pockets can be seen as a positive in the long-term.
So, if folks aren’t buying new cars or taking extra vacations with this influx of cash, what are some alternatives to just letting their money sit in the bank? A few ways people can put their extra money to work include:
- Beef up the emergency fund
- Max out retirement contributions
- Contribute to the kids / grandkids educational savings
- Update estate planning documents