Thursday, February 01, 2007

NOW THAT CAN'T BE A GOOD THING

According to A.P.'s "Economics Writer," the U.S. Savings Rate in 2006 was the lowest in 74 years.

In case you don't have a calculator handy, 74 years before 2006 was 1932, a date synomymous in American's minds with "The Depths of the Depression." (Except for George Bush; in his mind it's synomymous with "A year a long time ago. Wait, ya' mean somethin' happened then?"). And how low was the 2006 Savings Rate? Well, it was pretty damn low:
Negative 1%.
That's right. The average American spent more than he or she earned last year. Pretty obvious when you think about it, but stark & scary to see it summarized in one figure.

Nothing good to say about this, so I won't even try.

10 Comments:

Anonymous Kelly said...

I don't buy the hype. I don't think that the "American Savings Numbers" bandied about take into account what people put into there 401(k)s or home equity.

Granted, people should do a whole lot more of that kind of saving, and a whole lot less spending, generally speaking.

But as someone who works daily with 401(k) plans, I just know that there's more in there, nationally, than people get credited with saving...

I take all these scare stories as another example of the media grasp for sensationalism at the expense of real substance - an story educating the public on financial literacy basics would be much more helpful. And is much more wanting...

11:18 AM  
Anonymous Kelly said...

Oh, crud. A typo above. Not sure if it's worse that I made a typo or that I feel compelled to point out here that I know I made it.

11:19 AM  
Anonymous Mike said...

Not sure if it's worse that I made a typo or that I feel compelled to point out here that I know I made it.

We're lawyers, we can't help ourselves.

12:05 PM  
Blogger Thrillhous said...

As a copy editor, I fully sympathize with the compulsion to fix a typo. However, I can't understand why it took you a whole minute to fix it!

As for the savings thing, I agree that there's a whole lot of people w/ money in retirement funds, but there's even more people who have squat for retirement, namely, poor and lower middle income folks, the young, and most immigrants.

1:44 PM  
Blogger Hellasious said...

Re: savings numbers

The numbers, sadly, are very real - to the extent that any national account numbers are real and accurate, I'll grant you that.

It is really very, very simple: personal savings are calculated as disposable personal income minus personal spending. What you make minus what you spend. The savings RATE is that number divided by disposable income, to give the percentage of income that is saved.

Americans have been spending more than they make for 21 months in a ROW now (negative savings). They are spending from accumulated savings and borrowing in order to consume.

Unwise.

5:01 PM  
Anonymous Mike said...

They are spending from accumulated savings and borrowing in order to consume.

Bingo. But more than unwise, it's unfortunate. I'm not sure there's any other option for most people.

5:11 PM  
Blogger Otto Man said...

At least the nation's economy are in sure hands.

Let's see... We have the largest top-heavy tax cuts since the 1920s, the greatest income gap since the 1920s, the greatest wealth maldistribution since the 1920s. We had a new technology bubble burst a couple years back, like the auto industry did in 1926, and the housing bubble bursting now, like it did in 1928. Meanwhile, the stock market's still climbing like it did in 1928, carrying more and more of the national economy on its back.

What could possibly go wrong?

8:42 AM  
Anonymous waitingforthealiens said...

I would not refute that American’s have a low savings rate. I could not tell from the article whether pre-tax savings like 401K contributions and employer matches are counted.

Also, would the total purchase price of a house which might be several times one’s annual after-tax income, be counted as spending in the year of purchase? Or just the down payment, mortgage principle and interest paid in the first year? When I bought my first house, the down payment was probably more than a third of my annual gross salary.

11:25 AM  
Anonymous Mike said...

WFTA - I've also wondered how mortages & home-based earnings factor into these figures: increases in home equity, tax savings, negative amortization on interest-only mortages, etc.

Technically, a mortgage is serious debt, but a large down payment, fixed-rate mortgage isn't quite the sort of debt we want to preach against.

12:06 PM  
Anonymous waitingforthealiens said...

.....the down payment was probably more than a third of my annual gross salary.


Which I failed to point out wasn't very damn much.

Have a great weekend.

5:35 PM  

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