Why Do We Have Such A Low Personal Savings Rate?

[creditcardfree]

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????

Well, I didn't say we should at all. I'm the most patient person when it comes to spending. But actually, I think that IS what is happening!! And it is costing the US big time. It WILL be the downfall of our nation, if something doesn't change.

[LivingAlmostLarge]

And part of it is that SS wasn't meant to be the entire retirement plan. It also didn't account for people living so long. So it's draining the budget because people use it more than ever since pensions are going by the wayside and because people save less and live longer.

[Singuy]

You know what is really sad? Looking at the savings rate chart above, there used to be a time when the bank gave out outrages amount of interest (12% 5 years CDs in the 1980s) and yet still no one saved.....it almost seems like not one outside factor affects personal savings rate here in the U.S...

[Joan.of.the.Arch]

I wonder about the meaning of that chart you've presented, though.

One thing that makes me question what facts it actually portrays is the statement in the caption, "The rich save more as a fraction of their income, except in the 1930s when there was a large dissaving through corporations. NB: The average private saving rate has been 9.8% over 1913-2013."

Dissaving? Corporations? I though we were talking about private savings.

9.8% average. What sort of average is this? Who is included?

What is really counted as savings in that compilation? Only deposit accounts? What about employer retirement or pension accounts? What about purchase of purchase of government bonds? What about corporate stocks or bonds? How about investments into individuals' own small business? Or as is somewhat popular to discuss on this forum, investments in real estate? Some of that might be called spending rather than saving. I don't know the assumptions and definitions behind that graph.

Also, in the back of my mind I thought I remembered having read that average US savings were 10-12% of disposable in 1975, I think it was. If you are curious enough about that I'll try to track it down. But yeah, it might be kind of bleak, but maybe it hasn't always been so bleak.

[Singuy]

I wonder about the meaning of that chart you've presented, though.

One thing that makes me question what facts it actually portrays is the statement in the caption, "The rich save more as a fraction of their income, except in the 1930s when there was a large dissaving through corporations. NB: The average private saving rate has been 9.8% over 1913-2013."

Dissaving? Corporations? I though we were talking about private savings.

9.8% average. What sort of average is this? Who is included?

What is really counted as savings in that compilation? Only deposit accounts? What about employer retirement or pension accounts? What about purchase of purchase of government bonds? What about corporate stocks or bonds? How about investments into individuals' own small business? Or as is somewhat popular to discuss on this forum, investments in real estate? Some of that might be called spending rather than saving. I don't know the assumptions and definitions behind that graph.

Also, in the back of my mind I thought I remembered having read that average US savings were 10-12% of disposable in 1975, I think it was. If you are curious enough about that I'll try to track it down. But yeah, it might be kind of bleak, but maybe it hasn't always been so bleak.

Looks like our savings rate did peak at around 12% when interest rates were stupid high.

The link I am providing is the full article where the chart was extrapolated.

http://gabriel-zucman.eu/files/SaezZucman2014.pdf

[disneysteve]

You know what is really sad? Looking at the savings rate chart above, there used to be a time when the bank gave out outrages amount of interest (12% 5 years CDs in the 1980s) and yet still no one saved

You're forgetting the other side of that equation.

When CDs were paying 12% it was because inflation was sky high. Prices were rising overnight. People were scared that they wouldn't be able to afford anything 3 months or 6 months or a year down the line. Grabbing a great CD rate wasn't at the top of their to-do list.

On the other hand, my father, who I inherited my financial acumen from, jumped on those rates as fast as he could and put every penny he could scrape up into those CDs. Sure enough, after a year or two, inflation settled down, interest rates fell, and he continued to collect 12% for a few more years.

[bzbee]

How do they even know how much the people are saving? No one asked me what % I am saving. How can they make statistics and charts on the info they don't have?

[james.hendrickson]

How do they even know how much the people are saving? No one asked me what % I am saving. How can they make statistics and charts on the info they don't have?

Hey Bzbee - I think the Bureau of Economic Analysis has the methodology pretty well figured out.

[disneysteve]

How do they even know how much the people are saving? No one asked me what % I am saving. How can they make statistics and charts on the info they don't have?

I think all of those statistics are suspect. They make a lot of assumptions and extrapolations. They use some legit data from tax records, but ultimately, they can't ever know exactly how much any individual is saving, especially if you are saving outside of the traditional banking system.

There are folks here who purchase precious metal as their primary form of savings. I'm sure these stats don't reflect that. There are some who buy other collectibles. There are some who keep a stash of cash on hand. Stuff like that isn't officially on the books as savings.

So the numbers might be a decent estimate but they're never going to be 100% accurate.

[clatoden99]

As an average, Americans save at a rate of approximately 4% of net income. This varies from year to year, rising, for instance, after the downturn of 2008-2009 while falling again now and for the foreseeable future.

There are actually many incentives to save in the USA. ROTH IRA's present the prospect of a savings plan where you never pay taxes on future growth. What could be better? The existence of 401k's and 403b's give working people the added incentive of employer matching funds. If you take advantage of these "gifts" starting in your 20's or 30's. you will become one of those millionaire's next door. Why don't we?

Many actually do. But if you have a figure of 30 to 40% of the population that has no relationship with any bank or saving institution, the national average makes it seem like nobody is saving. But, in fact, the 60-70% who are saving are doing so at rates that would compare favorably with those of a saver nation like Germany.

Why do so many fail to save at all? There is this vague feeling that you will be taken care of at the end. Social security. Medicare and Medicaid. They will supply a life that is above the level of pure desperation but just barely. For a long time, Americans could think of home ownership as a savings plan.

[Singuy]

As an average, Americans save at a rate of approximately 4% of net income. This varies from year to year, rising, for instance, after the downturn of 2008-2009 while falling again now and for the foreseeable future.

There are actually many incentives to save in the USA. ROTH IRA's present the prospect of a savings plan where you never pay taxes on future growth. What could be better? The existence of 401k's and 403b's give working people the added incentive of employer matching funds. If you take advantage of these "gifts" starting in your 20's or 30's. you will become one of those millionaire's next door. Why don't we?

Many actually do. But if you have a figure of 30 to 40% of the population that has no relationship with any bank or saving institution, the national average makes it seem like nobody is saving. But, in fact, the 60-70% who are saving are doing so at rates that would compare favorably with those of a saver nation like Germany.

Why do so many fail to save at all? There is this vague feeling that you will be taken care of at the end. Social security. Medicare and Medicaid. They will supply a life that is above the level of pure desperation but just barely. For a long time, Americans could think of home ownership as a savings plan.

Are you sure that so many people save? 76% of the people lives paycheck to paycheck, 62% of the people can't even come up with 1k for emergencies....so I don't see how 60-70% of the population here compares favorably to Germans.

[tripods68]

I think all of those statistics are suspect. They make a lot of assumptions and extrapolations. They use some legit data from tax records, but ultimately, they can't ever know exactly how much any individual is saving, especially if you are saving outside of the traditional banking system.

Banks are required to report to Federal Reserve (FRB) as part of their reserve & other requirements Reg D. I think this is where most of the statistics comes from used from many surveys about consumer spending, savings rate, etc.

Just my 2 cents.

[disneysteve]

Banks are required to report to Federal Reserve (FRB) as part of their reserve & other requirements Reg D. I think this is where most of the statistics comes from used from many surveys about consumer spending, savings rate, etc.

Exactly, but what about the guy who saves by purchasing gold bars on ebay or the gal whose retirement "account" is the 3 rental properties she owns? I think there is a fair amount of "saving" that happens outside of the banking system where it doesn't get included in these stats.

[tripods68]

Exactly, but what about the guy who saves by purchasing gold bars on ebay or the gal whose retirement "account" is the 3 rental properties she owns? I think there is a fair amount of "saving" that happens outside of the banking system where it doesn't get included in these stats.

That's the underground world where very little taxes are reported. T

That's why I vote for "consumer spending Tax", rather the income tax we currently have. The more you spend the more you pay in taxes even the undocumented.

[disneysteve]

That's the underground world where very little taxes are reported. T

That's why I vote for "consumer spending Tax", rather the income tax we currently have. The more you spend the more you pay in taxes even the undocumented.

True, but this is a whole different topic than the point of this thread which is the national savings rate.

I think a consumption tax instead of an income tax is an interesting idea. I don't know enough about the details to say firmly what I think but I do agree that the current tax system really needs an overhaul.