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Many experts are predicting that a new government report from the commerce department out tomorrow (Monday) will show that for the first time ever that household saving is in negative territory. The monthly Personal Income and Outlays report has been issued since 1947 and measures household savings. This is done by taking what households spend on gasoline, housing, food and other goods and services and comparing those expenses to the income households earn after taxes.
Even though Americans have had lower saving rates compared to many other countries, they were still saving some money. As recently as the early 1990s, Americans were saving 7% of their disposable income although the savings rate had diminished to less than 1% in the past year.
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Experts believe one of the main reasons for the low savings rate is the current strong housing market. More and more consumers are relying on the equity built up in their houses as their savings and a place to find extra money. With the increasing ease of home equity loans and mortgage refinancing, households are able to tap more money beyond their income.
While having savings cross over into negative territory will be symbolic, experts point out that the savings rate is now so small that it will likely have little actual effect on the economy. The bigger worry is that interest rates will continue to rise cutting off the non income stream of money from housing that consumers have been relying on for their spending.
Even though Americans have had lower saving rates compared to many other countries, they were still saving some money. As recently as the early 1990s, Americans were saving 7% of their disposable income although the savings rate had diminished to less than 1% in the past year.
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Experts believe one of the main reasons for the low savings rate is the current strong housing market. More and more consumers are relying on the equity built up in their houses as their savings and a place to find extra money. With the increasing ease of home equity loans and mortgage refinancing, households are able to tap more money beyond their income.
While having savings cross over into negative territory will be symbolic, experts point out that the savings rate is now so small that it will likely have little actual effect on the economy. The bigger worry is that interest rates will continue to rise cutting off the non income stream of money from housing that consumers have been relying on for their spending.
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