 |
| |
 |
| |
 |
| |
 |
Personal Savings: The New Year’s Resolution We All Need to Make
January 3, 2005
By: ChartingTheEconomy.Com
The good news is personal savings was up slightly in November. The other news is not so good. Personal Savings
continues to track at the lowest levels since the Great Depression. The recently released Commerce Department
figures show personal savings as a percent of disposable income was 0.3% for the month of November 2004.
Personal savings has been on a continuous decline for the past couple of decades and there is no sign of reversal.
For perspective, just look at the average annual savings rate over the past 75 years; it is just over 7.5%. The chart
below shows the trend.
What does 0.3% of disposable income mean in dollars? It is just over $6 per person for the month of November. If you
look at 2004 on an annual basis, Americans saved about $216 per person through November. Let’s take a look. The
next chart shows the per capita monthly savings in dollars.
What exactly does the lack of personal savings mean? It means a lot, but for now let’s just point out some highlights.
- On average Americans are spending just about every dollar they make and are relying on gains in their
personal assets to increase their net worth. 1
- On average Americans are not preparing for retirement.
- It is increasingly difficult to reverse the U.S. current account deficit with our trading partners. A primary cause of
the current account deficit is that U.S. consumers far out spend their foreign counterparts.
- Consumer spending can still increase with increases in income, however, unless personal savings go negative,
the rate of growth in consumer spending should slow over the next couple of years.
- The Federal Reserve’s interest rate hikes have not yet provided adequate incentive to make Americans increase
savings. Increases in interest rates usually lead to increased savings because higher returns are available on
savings and because it increases borrowing costs.
The Commerce Department did not exactly give us words of joy during the holidays. Instead they let us know that
personal savings continue to be almost non-existent in America. Maybe all of us should add saving more to our list of
New Year’s resolutions.
Source: Data on personal savings is from The U.S. Commerce Department
1 It should be noted that the Government’s statistics on personal savings do not include capital gains on personal
assets such as equities and real estate. Therefore, some economists argue that these statistics understate total
personal savings. However, the statistics actually take into account a broad range of income sources. Besides wages
and salaries the statistics include employer contributions to pensions, personal interest and dividend income just to
name some of the income sources.
