Americans finally start saving again

[kork13]

Found this article from Fortune Magazine this morning.... Seems that people are finally starting to return to saving. What a remarkable idea!!

I'll specifically point out this chart in the article--check out how high it used to be back around 1990! For that to be the national average, that's pretty darn good.

**Hopefully this works, I've never inserted a picture here before...

NEW YORK (Fortune) -- The economic storm pelting the U.S. economy is going to do plenty more damage to already flattened job and housing markets.

But as dark as the next three or four quarters could be, the U.S. economy appears to be undergoing a more lasting, and ultimately uplifting, shift.

Americans who for decades have spent an increasing share of their incomes and taken on more and more debt are now, for the first time in years, saving instead.

The personal savings rate, which measures the amount of disposable personal income that isn't spent, ticked up to almost 3% in the second quarter of 2008, after almost four years below 1%.

"The bright spot in a dark economy"

[Broken Arrow]

Hehe, wow, that's a nice little spike there, for this year.

Anybody know why the savings rate was so high back in the 90's?

[kork13]

Two more charts I found:

International savings rates from 1990-2005.


And the American savings rate from 1961 to 2001, comparing savings rate against a "household wealth to disposable income" ratio.

The former is mostly just kinda an interesting comparison. The latter is alarming. Even if you look only at the savings rate, it was NEVER below 6% until about 1995. Since then, it's never gone back up.

So actually, BA, the question should be "Why has it gone down so much?" Here's one article that tries to explain that question. My best attempt at short, simple summaries of some possibilities are as follows:
*** 1) The "wealth effect". The increased value of assets stimulates consumption.
*** 2) People are confident that income will continue to rise, decreasing the need for savings (because you'll be getting more money next year).
*** 3) Increased access to credit has decreased the need for liquidity. *NOTE: "While this could be a significant contributing factor, the evidence put forward does not indicate that this is the principal factor propelling the consumption boom"

[Broken Arrow]

Huh, sad but I suppose this year is the year that all that changes. Thanks for sharing!

[disneysteve]

Anybody know why the savings rate was so high back in the 90's?

So actually, BA, the question should be "Why has it gone down so much?"

Exactly, kork. BA, the savings rate was always up there until recently.

To be fair, though, if I'm not mistaken, the official government calculation of the savings rate does NOT include money put into an employer-sponsored retirement plan like a 401k or 403b. Years ago, those plans didn't exist or weren't nearly as popular once they did exist. Today, someone who puts 15% of income into a 401k but doesn't save anything else would show up in the stats as having a 0% savings rate which obviously doesn't make sense.

[kork13]

To be fair, though, if I'm not mistaken, the official government calculation of the savings rate does NOT include money put into an employer-sponsored retirement plan like a 401k or 403b.

This is correct, that second article mentions that it doesn't consider any money which is invested, to include any retirement plans. So I suppose the savings rate should actually be at least a bit higher.

[click4credit]

I just hope this financial crisis will come to an end soon..

[rob62521]

It's about time more people (besides us on this forum) start saving. Maybe people are hearing that line, "Cash is King."

[Ima saver]

I have always saved at least 10% since I was 12 years old.

[disneysteve]

This is correct, that second article mentions that it doesn't consider any money which is invested, to include any retirement plans. So I suppose the savings rate should actually be at least a bit higher.

It also doesn't include home equity, so if I send in $500/month in extra principal payments on my mortgage, that doesn't count as savings either. It really is a flawed formula.

[Ima saver]

That is true. I have a lot of home equity. (100%)

[Ima saver]

I think i am the only person on here who was raised by parents who were adults in the depression. They saved for everything they bought.

[tripods68]

I don't think there is a way to capture extra payments to mortgages as a form "savings" since lenders aren't required to report such information. Its the same way for 401K contributions (pretax) or ROTH (post tax) since they are privately held, controlled, and managed.

Bank deposits on the other hand are required and monitored by the FDIC and Federal Reserve.

There is also the notion of "fair" reporting practices comparison of various countries. They all adhere to sets of standard requirement of reporting that are publicly available and provable so data made for comparisons are "real" and aren't somehow made up.

[disneysteve]

There is also the notion of "fair" reporting practices comparison of various countries. They all adhere to sets of standard requirement of reporting that are publicly available and provable so data made for comparisons are "real" and aren't somehow made up.

True. I didn't mean to say the data is worthless, just that it really doesn't give a true picture of what people are saving.

I could put $15,500 in my 401K. My wife could do the same. We could also each put $5,000 in our Roths. I could send an extra $500/month to our mortgage. That would be a total of $47,000 in annual savings. My official savings rate, though, would be 0% based on the way it is calculated.

[Joan.of.the.Arch]

Yes, you could no all that and you could also set aside $5000 in a coffee can in the kitchen, and buy $1000 a month in silver hidden in your unused (because you use a clothesline) clothes drier, and none of that is called "saving," is it?