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Americans Aren’t Saving

By JLP | January 30, 2006

This article on the Arizona Republic website talks about the latest Commerce Department report on Personal Income and Outlays (PDF). Apparently American’s savings have hit the lowest level since the Depression. According to the report:

Personal saving — DPI less personal outlays — was a negative $67.4 billion in December,
compared with a negative $21.6 billion in November. Personal saving as a percentage of disposable
personal income was a negative 0.7 percent in December, compared with a negative 0.2 percent in
November. Negative personal saving reflects personal outlays that exceed disposable personal
income. Saving from current income may be near zero or negative when outlays are financed by
borrowing (including borrowing financed through credit cards or home equity loans), by selling
investments or other assets, or by using savings from previous periods. For more information, see
the FAQs on “Personal Saving” on BEA’s Web site.

One thing I’m not certain on is whether or not 401(k) contributions are counted as “savings.” I haven’t been able to find a definite answer to that. Anyhow, this is not good news. We as a nation have got to do a better job of taking care of ourselves.

Topics: Budgeting | 5 Comments »


5 Responses to “Americans Aren’t Saving”

  1. Gary Anderson Says:
    January 31st, 2006 at 3:13 pm

    Greenspan was powerless to make people save. But what made them money? Their houses. They thought the gains were real so they spent on cars, remodeling, boats, college for kids, second houses. Now they are realizing that there may be some “froth” in the housing market and now they are in debt deep. It is definitely time to save. But will the fed inflate and make the dollars saved worth less, probably. It will be interesting to see how far the fed will go to weaken the dollar and inflate. It could have disastrous consequences for long term bonds and for fixed income interest rates. So we have to wait and see.

  2. Suresh Says:
    February 2nd, 2006 at 1:13 pm

    And yet, the Mainstream Media continue to find pundits, who insist that current savings rate figures are not meaningful because they don’t reflect investment gains in equities and housing, for instance. That seems perfectly reasonable. But, it’s counterfactual. See, e.g., Contrary Investor’s article, “Neff said,” which provides empirical evidence that shows there’s no savings substitution effect over the past several decades. (The article can be found at http://www.safehaven.com/article-4532.htm or http://www.contraryinvestor.com/mo.htm)

  3. Paul Says:
    February 2nd, 2006 at 4:16 pm

    I couldn’t agree more. Any time someone says “it’s different this time”, it’s time to pack your bags. It reminds me of how it didn’t matter that dot com stocks were at levels that implied 200-300 years worth of earnings. Same thing currently with the mania for oil and gold. The excess is being drained out of the system, and there is no way for the dollar not to be worth less in the future. Would this make inflation adjusted securities the best bet? Hard to say, but at least your would always be sure of getting your inflation-adjusted principal back.

  4. sam Says:
    February 2nd, 2006 at 4:50 pm

    I tend to get confused about the reports of low or no savings, and wonder how accurate they are. People I know (including myself) are socking all they can into their 401k’s, IRA’s, and so on. Am I just living in some bubble of super savers? Or does “savings” only include CDs and savings accounts at banks and credit unions? If so, I can understand why the savings rate is low. I would rather put my money into a bond or stock index fund.

  5. MadMalc Says:
    March 1st, 2006 at 4:55 pm

    Is the root cause to people not saving (and it’s not limited to USA) is that people get into debt without even knowing it until it’s too late. Then it’s survival and little thought or money are available for savings? Not long ago our parents had money in their wallets, and maybe a tin or a bank account. As they spent it was obvious how much was left and you couldn’t spend what you didn’t have. Now we have store cards, credit cards, bank loans over drafts store loans. If you have 5 credit cards, 3 store cards, 3 loans etc it’s almost impossible to know at any one time how much you’re in debt until you reach the point where your incoming doesn’t cover your outgoings… We also talk of saving whil we are still in debt e.g. “There are almost no savings accounts that offer interest rates as high as the ones credit cards charge. Here’s a question: if you have $10,000 in a savings account earning 5% per year and $5,000 on a credit card at an interest rate of 20% per year, how much money do you have? After just five years, the answer is effectively $0 – your debt would have grown to around $12,500, the same amount that your savings are now worth.” (source Personal Finance http://www.cheap2go.com/)

    A more disciplined and rigid approach to managing personal finances is required.

    Bye for now,

    Malcolm
    http://www.cheap2go.com

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