After the Great Depression, households avoided debt and saved their money with conviction. A sense of fear was instilled in Americans' pocketbooks that lasted a generation. The Great Depression proved what not having enough money could do to a family, and those who lived through it didn't forget it. They saved a healthy chunk of their income -- around 10% from the 1950s through the 1980s -- and lived within their means.
It's still too early to tell, but it doesn't look like our more recent Great Recession has created the same mentality. The personal savings rate spiked in 2009, but has since drifted downward to around 3.5% -- still low by historic standards.
Why, after living through the financial torture of the past four years, are households back to spending most of what they make?
I asked former Fed policy wonk and current Brookings Institute scholar Karen Dynan that question recently in a sit-down interview. Here's what she had to say:
Please enable JavaScript to view this video.
