Why Do We Have Such A Low Personal Savings Rate?

[sv2007]

I think it is a combination of:

1. confidence in the economy. Decades of stability means people have a positive outlook and spend more (high consumer confidence, thinks wages, assets will always go upwards).

2. tradition. Consumer consumption is the biggest portion of the US GDP for some time now. This means it's the social norm; so people don't think it is bad.

3. cheap stuff. Most things are pretty cheap in the US, lots of tourists buy foreign-made stuff while in the US. The US luxury tax/sin tax is relatively low compared to mayn countries.

4. easy credit. This may be tied to #2. Credit allows people to think in terms of monthly payments but not much care about the # of months. Pretty much anybody can get a credit card and home mortgage. How many people in China has a mortgage? and what's the interest rate? fannie mae and freddir mac help make mortgage rates affordable, allowing almost all people to build wealth and obtain credit.

There's probably more reasons. But I don't think education is a very important reason; you see lots of highly educated people living large with little savings. It like auto insurance, why does US have one of the highest % of insured drivers? What's China's like? (many there don't bother with it). It's all about tradition/social norms.

If we look at the saving rate, it increases right after each recession. I.e. my #1 reason is lowered, so people save more. People's education level hasn't changed; but their confidence in US econ did.

Anyway, I do think it would be nicer if most people save a bit more so that they can take care of themselves in moderate tough times. I doubt anybody here would like what I envision as economic/society eutopia; my wife claims I know nothing and that's why I have such messed up thinking

[LivingAlmostLarge]

Possibly too easy to get credit. It's easier to inflate our lifestyle. Also wages have stagnated for the middle class. Before you could support a family on one income of a teacher, accountant, administrator/clerk, janitor, police, etc. Now you can't. And instead you have crushing school debt.

SS is insolvent for precisely the reason Disneysteve mentioned. People are living longer and drawing more. Same with pensions. Actuaries never expected people to live so long.

[97guns]

every penny you save today will be a dollar you can spend tomorrow, i save every way i can because every penny saved goes to your bottom line just like running a business, businesses are always trying to streamline and create more profit, your entire net worth should be treated the same.

i dont buy garbage bags, i use grocery bags, i take home sugars and napkins from starbucks, i use plastic bags from the produce department, i value shop, and im not extravagant. are packs of sugar gonna get me rich? nope, in fact i am spending more at starbucks to aquire these sugars but it all adds to my bottom line, just my viewpoint

[elessar78]

Let's take a look at other countries too though... the next three economies behind the US are: China, Japan, and Germany.

All have a strong saving ethos. But China's economy isn't really powered by anything legitimate. Their stock market is fluctuating like crazy because it's not really representing anything solid. I know that's a bit vague, but bear with me. Is the quality of life of their citizens great? In comparison to the other top five economies?

Japan, again strong savings ethos, but their economy has been mired in recession and anemic growth. Quality of life is very high

Germany, again strong savings ethos, and their economy and quality of life is very high. But their high savings rate is having a backlash in the EU because it's generating a lot of trade imbalance. Germany makes quality products and exports a lot but their citizens do not buy a lot of, say, premium Italian wine. To the pleasure of their board, Germans are very frugal.

Turning to the US, our spending habits help to spur our economy and in turn basically (in some ways) keep the global economy going. But it comes at a big cost to us in terms of low savings rate. If collectively the entire US increased it's savings rate, IMO, it would be kind of disastruous economically. It's probably better if we leave most people's spending where it is and the wise ones to save and work the system to our advantage? That rampant spending by "everybody else" helps to keep our stock market and investments strong.

[pflyers85]

Possibly too easy to get credit. It's easier to inflate our lifestyle. Also wages have stagnated for the middle class. Before you could support a family on one income of a teacher, accountant, administrator/clerk, janitor, police, etc. Now you can't. And instead you have crushing school debt.

SS is insolvent for precisely the reason Disneysteve mentioned. People are living longer and drawing more. Same with pensions. Actuaries never expected people to live so long.

I think the wages stagnating and things like homes, college tuition, healthcare, etc going up are precisely because private sector companies cannot operate like the government. Many in the country want wages to be tied to inflation and cost of living. The problem with that line of thinking is they are only looking at it from the employee side of things and not considering the ramifications that has on employers. Employers have to deal with real numbers. They don't have the Treasury and Federal Reserve bank at their disposal to spend more on labor costs than the market would dictate. The government on the other hand do have both and use both to fund in excess of what it brings in with tax revenue. From the housing market, college tuition, healthcare, the government is either involved with direct funding of programs or socializing the losses in the case of private default. So regardless of what happens, lending institutions, colleges, hospitals, and health networks know they are getting the money from somewhere. Either the good faith effort of the borrower to pay back the debt or the government subsidizing the remainder of the debt if the citizen(s) fails to make good on their debts.

[Singuy]

Let's take a look at other countries too though... the next three economies behind the US are: China, Japan, and Germany.

All have a strong saving ethos. But China's economy isn't really powered by anything legitimate. Their stock market is fluctuating like crazy because it's not really representing anything solid. I know that's a bit vague, but bear with me. Is the quality of life of their citizens great? In comparison to the other top five economies?

Japan, again strong savings ethos, but their economy has been mired in recession and anemic growth. Quality of life is very high

Germany, again strong savings ethos, and their economy and quality of life is very high. But their high savings rate is having a backlash in the EU because it's generating a lot of trade imbalance. Germany makes quality products and exports a lot but their citizens do not buy a lot of, say, premium Italian wine. To the pleasure of their board, Germans are very frugal.

Turning to the US, our spending habits help to spur our economy and in turn basically (in some ways) keep the global economy going. But it comes at a big cost to us in terms of low savings rate. If collectively the entire US increased it's savings rate, IMO, it would be kind of disastruous economically. It's probably better if we leave most people's spending where it is and the wise ones to save and work the system to our advantage? That rampant spending by "everybody else" helps to keep our stock market and investments strong.

China's stock market is actually not tied to anything..might as well just call it the gambling market. A company can do well or do poorly and yet none of that actually affects that company's stock. It is based solely on speculation of what someone else is actually buying (following the herd mentality).

How the citizens of U.S spend their money is good for economic growth, but it's detrimental to the environment. Because the need to save up for anything is not needed, people just ends up swapping out goods way before their expiration date(from clothing to cars...we just swap them out and put our purchases on credit).

[bjl584]

Somewhere along the line Americans lost the ability to be patient and make sacrifices. We want everything yesterday and at any cost.

I guess you can blame cultural factors. We are inundated with ads and marketing from all angles proclaiming that we "need" and "deserve" the latest and greatest gizmo. You can also blame the lending industry. 2008 really has taught us nothing. Pretty much anyone with a pulse can get credit or a loan. The concept of saving up for purchases is non existent with the younger generations. If you tell someone that you saved up cash to buy a car they will look at you like you have some sort of disease, or that you are lying, or that you robbed a bank for the money.

[Singuy]

Somewhere along the line Americans lost the ability to be patient and make sacrifices. We want everything yesterday and at any cost.

I guess you can blame cultural factors. We are inundated with ads and marketing from all angles proclaiming that we "need" and "deserve" the latest and greatest gizmo. You can also blame the lending industry. 2008 really has taught us nothing. Pretty much anyone with a pulse can get credit or a loan. The concept of saving up for purchases is non existent with the younger generations. If you tell someone that you saved up cash to buy a car they will look at you like you have some sort of disease, or that you are lying, or that you robbed a bank for the money.

I was at the BMW dealership to do a service on my wife's car under warranty and guess what I saw? Price tags on M5s, M6s in MONTHLY payments. I asked my wife "do you know how much this car is?..I just know it's 999/month, and that other car is 1299/month.

[97guns]

I was at the BMW dealership to do a service on my wife's car under warranty and guess what I saw? Price tags on M5s, M6s in MONTHLY payments. I asked my wife "do you know how much this car is?..I just know it's 999/month, and that other car is 1299/month.

i went truck shopping with my cousin a few weeks back and my cousin tells the saleman "just keep my payments at $700, i dont care how much the truck is and i dont care how many years the loan is" ended up walking out of there with a 2013 dually diesel financed for 5 years

i saw the salesmans eyes light up like a christmas tree, this is how we shop for cars now

[Fishindude77]

Look at the tags on the new boats in Bass Pro, Cabelas or somewhere like that. They just show the monthly payment amount, and in fine print they are all 120 months, 10 years.

[tripods68]

DEBTS for LIFE!

That's exactly the problem; car debt, credit debts extended as IF were a 30-year mortgage. And YOU Wonder why people have little, or no Savings.

When you keep debts that long + interest, you have very little disposable income to save for retirements. And when you do not have EF set aside to absorb unexpected hits once in a while, that cost is added to the credit balance, on top of your roof leaks repaired cost added from prior month. It all odds up. But wait, "I get reward points" Ah...the debt trap. It is nonstop Debt cycles, like a mouse on the spinning wheel--that let people makes excuses to validate to spend $$ on credits to "FLY" free on reward points to Hawaii....

[Fishindude77]

Personally, I think the 30 year mortgage is a huge mistake.
Everybody takes one on saying that is the way to go because interest rates are best, and that they will pay ahead on it, this leaves them other money for long term investing, etc. I'll bet if the truth is known, darned few ever get it paid off or pay it off early, and most refinance a couple times taking on more debt, using equity for other things and drag them out longer. Pretty silly to buy a house when you are 30 with the plan of not paying it off till 60.

[Singuy]

So the mystery of our low savings rate is still not solved. I got a bunch of great possible reasons from external forces but there's always a good counter to them.

1. Our government doesn't encourage saving..interest rates are too low and social programs are too cushy if you are poor.

Counter: European countries are dealing with negative interest rates right now and a lot of those countries are far more generous on the poor than the U.S.

2. Education is too expensive.

Counter: The bottom 90% of earners (making 113k/year or less) are the ones with a 4% savings rate, and this savings rate actually increased from negative % from the 2000s. Savings rate peaked at 7% in the 1980s and has always been around 4-5% despite the cost of education.



3. We make too little

Counter: Look at China and India

4. We praise those with flash, everyone wants to look like they've made it.

Counter: So does other people around the world. I argue that the Chinese are more of a show off than Americans...just that the Chinese pays cash.

5. Advertisements got into our minds

Counter: And they also run TV ads in other countries...

6. Our cost of living is too high

Counter: Look at Europe again....

7. Health care costs too much!

Counter: Again, look at the chart above. Savings rate has always been pathetic for 90% of the country despite of healthcare cost. Health care cost is lower in Canada and their savings rate is equally as pathetic.

8. We are taxed too much!

Counter: And the socialized countries in Europe are not?

Still trying to figure this out...why is the thought of putting everything on credit ingrained into our culture? The use of credit has been around since the beginning of civilization, but why do we use it so irresponsibly?

[creditcardfree]

Still trying to figure this out...why is the thought of putting everything on credit ingrained into our culture? The use of credit has been around since the beginning of civilization, but why do we use it so irresponsibly?

Basically, our culture wants stuff now. We are an impatient culture. We don't want to wait. And many of us have not been educated as how that impacts us later. Some people don't even understand compound interest! Ugh.

[Singuy]

Basically, our culture wants stuff now. We are an impatient culture. We don't want to wait. And many of us have not been educated as how that impacts us later. Some people don't even understand compound interest! Ugh.

So we overhaul our entire social programs and tax structure because a bunch of people are impatient? SS and Healthcare eats up 50% of the national budget all because people doesn't have the will power to wait a few months or years before purchasing something????