There is a great deal of debate among economists about what impact the recession might have on household behaviour when it comes to saving, debts and spending. The optimists believe that households will continue to borrow to maintain their living standards in the face of rising prices and stagnant wages, fuelling a return to growth. Others are not so sure: they believe that households may start to rein in spending, reduce debt and begin to save more in the face of an uncertain economic future. Certainly, savings rates have increased since the downturn on both sides of the Atlantic. There is some evidence of households ‘de-leveraging’ – although some of this has been shown in the US to be the result of repossessions and defaults on loans – hardly signs of healthy household finances.

So, governments face a paradox: on the one hand, given that consumer spending accounts for approximately 70% of the economy, they need households to keep on spending to fuel the recovery – indeed, projections by the UK Office of Budgetary Responsibility build high levels of consumer borrowing into their forecasts. On the other hand, in an era of constrained public spending, both the US and UK governments are exhorting households to build up their own financial security so that they can weather economic shocks without resorting to relying on state support.

Taking a longer-term perspective, it is clear that since the 1970s, the US and the UK have become nations of spenders rather than savers. The UK household saving ratio plummeted from its peak of 12.3% in 1980 to just 1.7% in 2010, the lowest recorded figure since 1970, and substantially lower than the average of 7.6% recorded between 1970 and 2008. The US has exhibited similar patterns, with its saving ratio hitting an all-time low of 0.1% in 2008. Although it recovered somewhat from that nadir, reaching 5.3% by the end of 2010, this figure is still well below the normal levels for the 30 years before that.

At the same time as this long-term decline in household savings, debt as a proportion of household income has risen sharply when compared to 40-year patterns. Between 1994 and 2008, average family credit card debt in America doubled from US$4,300 to US$9,600. US household debt hovered around 50% to 60% of total household income in the early 1970s; by 2007, it peaked at 135% of household income.