Americans are saving their money again.

That’s right. Americans have finally begun to reverse their trend of spending more money than they earn, at least in some small part. The good folks north of the border at the Globe and Mail ran an article about this returning phenomenon the other day where they shared some historical stats:

Americans are suddenly spending less than they earn. While that might not sound heretical or surprising – how long can you go on spending more money than you earn? – it is an epochal moment for the free-spending United States. After saving an average of more than 7 per cent of disposable income until almost 1990, the United States went into a savings tailspin. Savings rates fell, in fits and starts, from 8 per cent, through 6 per cent in the early 1990s, to 2 per cent around 2000, to the ignominy of a negative savings rate by mid-2005.

Now, however, that is changing rapidly. November economic data showed U.S. savings spiked to 2.8 per cent of disposable income, up from zero at the beginning of 2008. Is it that Americans have suddenly figured out that saving is a good thing, or are they taking some sort of moral stand against profligate spending?

Look at that! At the beginning of 2008, Americans were saving zero percent of their disposable income, but towards the end of the year we were up around three percent. Alright! Go America! What does this mean for the world? The writer of this piece, Paul Kedrosky, gives us some idea…

To put it in context, a U.S. savings rate of minus 1 per cent meant roughly $2-million a minute was flowing out of U.S. consumer savings into other things, mostly consumption, like TVs and home renovations, and so on. Or, on an annual basis, that worked out to almost $1.3-trillion exiting the U.S. banking system for other places.

Turn that around, however, and things get very different, very quickly. At a 3-per-cent savings rate, the United States will see $3.8-trillion showing up next year in the banking system just from domestic savers. At 7 per cent, almost $9-trillion will come rushing in as part of the savings tsunami. It is a fire hose of money pointed at the banks, and it’s just beginning.

Ha! How about that, world? The market is up the creek right now, but America is going to get its value back and we’re going to get it from saving more of our own money. It’s simple cause and effect, right? If you want more money in the banking system without draining more taxpayer dollars, then you PUT IT there via savings accounts.

And that’s just what this country is fixing to do. Let’s go bigger and better than a 3% savings rate. All Americans should sit down and look at their personal annual budget and try to earmark 5% of their annual earnings for savings only. And why not go even bigger and better than that? Budget 5% of your income for savings and another 5% for donations to one or two United States-based charitable organizations of your choosing. Your first 5% helps provide for your future and your second 5% helps to build up another community within your own nation.

If you can afford to do it, then why not?

All this financial stress comes at a time when most Americans have the thinnest savings cushion to fall back on. They have been loading up on debt in recent years, drawing on the equity in their homes, in particular. The percentage of their disposable income that goes toward debt payments is at 14.3%, near the all-time high.

Good grief! More than 14% of the average American’s disposable income is going towards debt payments. Ugh – what a disaster. Let’s do some math…

Assuming that the average American family $120,000 per year in a two-income household, that means that take home pay after taxes would be something like $90,000 (possibly less). Now, if we believe CNN’s statistic above, then almost $13,000 of that take home income is directed towards debt payments annually. Gross!

Sure, I pay a bucket load of student loan debt, but that’s to be expected from someone who only stopped going to school two years ago. Imagine the typical American family with 2 or 3 kids who not only has to pay this much towards consumer and housing debt, but also has to put food on the table and clothes on the kids!

It’s rough out there. Now more than ever people should be socking money away into a savings account (after paying off as much consumer debt – credit card debt – as possible).