What would you do with an extra $750?
Most people would have no problem answering this question. Yet while low gas prices have saved Americans about $750 in 2015, they aren't spending the money, says CNN.
Starting 2016 at just under $2 per gallon, gas is the cheapest it's been since 2009, says AAA.
Americans slow to spend their windfall is part of the reason low energy prices will do little to strengthen the economy, The New York Times reports.
In the past, more oil was imported to the U.S., meaning that low oil prices led to an overall increase in the economy. With more product coming from domestic oil companies, however, consumers would need to spend the money they would otherwise have spent on gas in order to see a net gain.
Under usual circumstances, saving money and paying off debts demonstrates financial prudence. But what benefits your personal finances may have a negative impact on the overall economy.
The paradox of thrift is an economic principle popularized by John Maynard Keynes that essentially states saving money restricts economic growth, leading to lower income and lower net value.
American spenders account for 70 percent of economic activity in the U.S., says CNN. "If people don't spend, the economy doesn't grow."
But savings are important, and some are skeptical about how detrimental saving can be.
Trent Hamm, for example, in his blog the Simple Dollar, reminds us that the paradox of thrift only applies when money is taken out of the economy. "Putting money in a savings account does not remove it from the economy," he says.
Money in a savings account is subsequently lent out by the bank and recirculated in the economy. These loans may go toward funding a new business venture, buying a new home, a car or some other consumer spending.
According to Hamm, the only thing that really takes money out of the economy is hoarding. This means storing cash in a safe or under your mattress or burying a treasure trove in your backyard.
So unless you're Smaug the dragon, Hamm would say that your saving is probably not going to hurt the economy.
Still, a certain threshold of spending must be passed in order to achieve economic growth. Where last year low gas prices were expected to increase economic growth by 0.7 percent, because of reduced spending, the actual figure was closer to 0.4 percent, says the New York Times. In 2016, low oil prices may have no impact at all on economic growth.
Ultimately a balance is needed. While some spending is needed, Investopedia counsels against making large purchases (cars or houses) during economic downturn.
Making and keeping to a budget will ensure that you are both saving for your own financial needs, and contributing to the economy with adequate spending.
Most people would have no problem answering this question. Yet while low gas prices have saved Americans about $750 in 2015, they aren't spending the money, says CNN.
Starting 2016 at just under $2 per gallon, gas is the cheapest it's been since 2009, says AAA.
Americans slow to spend their windfall is part of the reason low energy prices will do little to strengthen the economy, The New York Times reports.
In the past, more oil was imported to the U.S., meaning that low oil prices led to an overall increase in the economy. With more product coming from domestic oil companies, however, consumers would need to spend the money they would otherwise have spent on gas in order to see a net gain.
Under usual circumstances, saving money and paying off debts demonstrates financial prudence. But what benefits your personal finances may have a negative impact on the overall economy.
The paradox of thrift is an economic principle popularized by John Maynard Keynes that essentially states saving money restricts economic growth, leading to lower income and lower net value.
American spenders account for 70 percent of economic activity in the U.S., says CNN. "If people don't spend, the economy doesn't grow."
But savings are important, and some are skeptical about how detrimental saving can be.
Trent Hamm, for example, in his blog the Simple Dollar, reminds us that the paradox of thrift only applies when money is taken out of the economy. "Putting money in a savings account does not remove it from the economy," he says.
Money in a savings account is subsequently lent out by the bank and recirculated in the economy. These loans may go toward funding a new business venture, buying a new home, a car or some other consumer spending.
According to Hamm, the only thing that really takes money out of the economy is hoarding. This means storing cash in a safe or under your mattress or burying a treasure trove in your backyard.
So unless you're Smaug the dragon, Hamm would say that your saving is probably not going to hurt the economy.
Still, a certain threshold of spending must be passed in order to achieve economic growth. Where last year low gas prices were expected to increase economic growth by 0.7 percent, because of reduced spending, the actual figure was closer to 0.4 percent, says the New York Times. In 2016, low oil prices may have no impact at all on economic growth.
Ultimately a balance is needed. While some spending is needed, Investopedia counsels against making large purchases (cars or houses) during economic downturn.
Making and keeping to a budget will ensure that you are both saving for your own financial needs, and contributing to the economy with adequate spending.
