2006 Personal Savings Fall to 74-Yr. Low

[CountAllVotes]

Thursday February 1, 10:35 am ET
By Martin Crutsinger, AP Economics Writer

Personal Savings Rate for 2006 Tumbles to Negative 1 Percent, the Lowest Level in 74 Years

WASHINGTON (AP) -- People once again spent everything they made and then some last year, pushing the personal savings rate to the lowest level since the Great Depression more than seven decades ago.

The Commerce Department reported Thursday that the savings rate for all of 2006 was a negative 1 percent, meaning that not only did people spend all the money they earned but they also dipped into savings or increased borrowing to finance purchases. The 2006 figure was lower than a negative 0.4 percent in 2005 and was the poorest showing since a negative 1.5 percent savings rate in 1933 during the Depression.

<snip>
The Institute for Supply Management said its manufacturing index registered 49.3 last month, down from a December reading of 51.4. A reading below 50 indicates that manufacturing activity is contracting rather than expanding.

Meanwhile, the Labor Department reported that the number of newly laid off workers filing claims for unemployment benefits dropped by 20,000 last week to 307,000. That improvement pushed the four-week average for claims to the lowest level in a year, indicating that the labor market remains healthy.

http://biz.yahoo.com/ap/070201/economy.html?.v=9

This is some great economy here in the USA; lowest personal savings rate since the Great Depression!.

[leftyladyfrommo]

1. Yes. That would be me. Since I have no job I have to use

my savings.

[Warpy]

3. That was me, August 2003 to May 2006

I lived very simply and nobody I worked with knew why. Well, that was why.

I knew disability was coming and I knew I needn't bother trying to get SSD with Repugs in charge.

[SheilaT]

2. Do such things

as 401k and other retirement accounts not count? I realize not everyone has them, and most people don't have a huge amount in them, but I know there are lots of them out there, including in this household.

Or is it a case of the very large savings of the relatively few at the top don't make up for the negligible savings and debts of those at the lower end?

[CountAllVotes]

4. if you have a negative savings rate

I rather doubt that anyone would have an 401K or and IRA muchless a decent job of any sort in the recent past. If they do have one, it would count I'd think in this "formula".

Bottom line is this: WE THE PEOPLE ARE BROKE!

:kick:

[AnneD]

14. I have often wondered that...

since a traditional savings account gets you squat in interest....I keep the minimal there and put the bulk of my money in an account earning more interest (if I am not paying off credit card bills and getting out of debt.

[eallen]

27. Yes, 401Ks and IRA contributions are included in the Commerce Dept's calculation.

The calculation has two steps. First, it calculates disposable income, as the sum of income less taxes. Second, it subtracts all personal outlays, excluding real estate, which is considered an investment. Thus, the savings rate includes contributions to 401Ks and IRAs, but does not include social security contributions, since these are viewed as a tax. It also does not include capital gains. So if your house or the mutual funds in your IRA increased in value by $50,000, that increases your net worth, but is not considered savings. There's a lot of discussion among economists of what the decline in savings rate means. Some attribute it almost entirely to increases in net worth not due to savings, and to demographic changes.

[Psephos]

28. You're mistaken; personal savings are calculated post-tax, which makes this an imaginary "disaster"

The savings rate is derived by subtracting personal consumption from disposable income (i.e., after-tax income), so the money in 401(k) and similar accounts isn't counted. These savings plans totaled about $3.2 trillion at the end of 2005.

The savings rate also does not take into account the equity of homes, which is the single biggest "savings account" most middle class people have during their working lives.

The savings rate also does not take into account the savings of businesses and governments. It's tax-advantaged to keep savings ("capital") at work in a business rather than to pull it out and hand it over to the tax man. It's also very, very good for the economy to encourage the accumulation and investment of working capital. Again, the uncounted hundreds of billions saved by and in corporations (including what one might call the "personal savings" of small business owners) is left out of the official savings rate.

What a joke of a statistic. Tax laws were passed thirty years ago to give tax-favored status to retirement savings and to exempt appreciation in primary residences, and then people responded by moving out of post-tax savings accounts into pre-tax vehicles like 401(k). Now, when the social engineering has worked so well that the average working household has a 401(k) worth $61,000, and a big chunk of tax-protected home equity, we're supposed to lament the collapse in post-tax savings?

To the contrary. We should be celebrating.

Peace.

[eallen]

29. No, I'm not. You're confusing savings RATE with savings.

Money in your savings account is not counted in the calculation, because it is a calculation of rate, not of savings. Money you add to your savings account is included. As are contributions to IRAs and 401Ks. That is very apparent if you read how it is calculated: total income less total tax less total personal spending. IRA and 401K contributions are part of total income, and they are not subtracted out. Hence, they are included.

It would simply be an accounting mistake to add the balances in savings accounts and retirement funds. That is a net worth calculation, not a savings rate calculation. There is, BTW, a separate calculation of change in people's aggregate net worth.

Now, you can argue over what the savings rate statistic means. It certainly doesn't include all changes in net worth. For example, it doesn't count the fact that my shares in XYZ increased in value from $40K to $50K. But that has nothing to do with whether or not those shares are held in retirement accounts. The savings rate simply excludes capital gains of all sorts.

:hippie:

[Psephos]

34. I think we're on the same page :-)

Specifically, here's the page I'm on:

The National Income and Product Accounts tables at the Bureau of Economic Analysis

http://www.bea.gov/bea/dn1.htm

You're right about the rate calculation including pre-tax contributions to 401(k)s. Thank you for correcting my error. :-)

That said, though, the "savings rate" figure does not include (tax deferred) capital appreciation in those and other accounts and holdings deemed investments rather than savings. So accumulation of investment income in what is really a savings account does not show up in the stat, and neither does appreciation in home value or accumulation of equity.

Artificial statistics aside, savings is simply income less expenses.

"In an economic sense, savings include purchases of shares or other financial securities. However, many official measures of a country’s savings ratio--total savings expressed as a percentage of total income--leave out such financial transactions. At times when the demand for financial securities is unusually high, this can give a misleading impression of how much saving is taking place."
http://www.economist.com/research/Economics/alphabetic.cfm?term=savings#savings


I'll stay with my larger point, which is that the actual, effective savings rate is not captured by the artificial "savings rate" statistic.

Interesting, too, to contemplate what happens when all the boomers start to cash out their accounts. It's going to be bonanza time at the Treasury. Wouldn't it be cool if someone in Congress thought about this, and pre-earmarked some of that for national debt reduction, given it's the boomers who reaped the benefits from the run-up in the national debt? Hint hint, Dems in Congress.

You may find this article from the NYT interesting, too.

A Contrarian View: Save Less and Still Retire With Enough

<snip>
Nevertheless, the loose confederation of well-regarded economists, who have not been working in concert, say their research points to the startling conclusion that many Americans are saving too much, not too little. Indeed, their studies of the savings and spending habits of the generation born between 1931 and 1941 revealed that at least 80 percent had accumulated more than enough wealth for retirement. While they have not studied the baby boom generation as closely, they believe that the greater wealth of that generation should also leave those retirees secure.

A study last October by another group of economists, including two working for the Federal Reserve Board, found 88 percent of retirees age 51 and older had adequate wealth.

“Even the most casual reading of the popular press will have you convinced that Americans are heading like lemmings over a cliff,” said John Karl Scholz, an economics professor at the University of Wisconsin at Madison. “Going into this, I had no idea that we’d find any results anything like this.”
<snip>

http://www.nytimes.com/2007/01/27/business/27money.html?_r=2&oref=slogin&oref=slogin

It's a pleasure to have a civil and informative discussion with you. This is the kind of exchange I came to DU for in the first place.

[BluePatriot]

30. I don't know

The above points make sense, but isn't it at least troubling that Americans don't seem to have accessible liquid savings that are not in their 401(k)s and houses? Wouldn't a housing devaluation or stock market slump then have more impact on these families than if they had a nest egg set aside in savings too for diversification purposes?

I feel this stat is a barometer of the financial health of the working/low middle class American which currently stinks from my admittedly anecdotal perspective...and would be interested in seeing any stats with 401(k)s and housing worked in.

[jwirr]

5. Hey, don't you know the economy is doing very good?

:sarcasm:

[CountAllVotes]

6. yeah like the USA can afford another "war"

:grr:

These people can't think beyond their personal fat wallets! They don't care about anyone but themselves! GREED rules might I suggest? :mad:

:dem:

[Lone_Star_Dem]

7. Personal savings down and borrowing is up.

Not a good combination. Is our economy really just living on borrowed time?

[Yavin4]

11. In A Word, Yes

Our entire economy is based largely on debt. Government debt and personal debt are what's holding up the economy.

[Nederland]

36. LOL

This from a person that predicted a major economic collapse in 2006.

[ShortnFiery]

8. But hey! The Stock Market Numbers are up for our Investor Classes.

Sooo Let's STFU and Go Shopping? :sarcasm:

I can hardly wait until Carlos Mencia gets a hold of this one. ;)

[LiberalEsto]

9. There's nothing left over

to save WITH.

[beth9999]

10. That's what you get...

... when the Repugs allow corporations to, in effect, steal right from the common people.

[Yavin4]

12. It's What You Get When You Don't Unionize

Without collective bargaining, you have no ability to raise your income above the rate of inflation nor minimize your healthcare costs nor have a retirement.

[crickets]

15. dingdingding! Yep. nt

[tanyev]

13. Yessir, this economy is smokin!

Smell the smoke?

[high density]

16. This means we need more tax cuts so we can spend more!

:sarcasm:

[lpbk2713]

17. And credit card debt remains at a record high.

While Limbore, Insannity and all the other RW propagandists beat the drum and tell us
all how great the BushCo economy is.

[Ezlivin]

18. Using Imaginary Numbers?

"Negative 1 Percent...."

What, my bank owes me? How does one go about getting a negative savings account balance without using Imaginary Numbers?

[high density]

21. It means people either had money saved and spent it

or they borrowed the money and spent it.

[mzmolly]

19. Gosh, I thought we all had 20K in the bank for a medical emergency?

:sarcasm:

[UrbScotty]

20. But Michigan's GOP says we're in a single-state recession!

:eyes:

[Porcupine]

22. but EVERY state is in a single state recession.....

what could that mean? One of the more succesful builders in my town, a lady whose townhouse projects were selling like hotcakes a year ago, is out of work. Nobody, and I mean NOBODY, is buying houses.

Inventories of houses for sale are up, prices are dropping and sales per month are dropping. This is all happening in a town that relies on construction for about 1/3 of it's economy.

We're screwed.

[AX10]

23. And this could lead to a high level of bankruptcies in the coming years.

The number is quite high as it is. It will only get worse. While 2006 was a fair year for the economy, the entire run since 2001 has been dismal. Wages are still not moving ahead of inflation. This year, they barely kept pace, which in an improvement over the past 4 years. Still it's quite dismal.

[The Anti-Neo Con]

24. Who can afford to save?

I know I can't. Wages are terrible in this country & do not keep up with inflation this is why people can't save anything.

[MadHound]

25. I can. I use a very simple principle.

I pay myself first. Ten percent off the top of every check goes into either a savings or investment account. No matter how big or small(and yes, I've had some mighty small ones) the check is. And this isn't limited to paychecks either, but any money I recieve, gifts, etc. From there I go ahead and pay out the bills and buy the food.

I also don't have a credit card, never had one, never will. Too easy to misuse, and I don't feel like paying money to spend money. Besides, I don't have to worry about ID theft as much.

So cut up the cards, and start paying yourself first. Yes, it will be a bit hard to readjust to a paycheck that is ten percent less, but in the long run it's worth it.

[The Anti-Neo Con]

31. I only make $8.50 an hour though.

EVERY penny I have goes toward my living expenses. I sometimes have $10 left over every month at most maybe.

[slackmaster]

33. Nobody can save money when getting paid that little

Good luck getting a better job.

[MadHound]

37. I've done this when I was making minimum wage

Yes, it's tough, a pain and a sacrifice. But in the long run it's worth it. Always pay yourself first, put it in an investment account so that you won't be tempted to use it. But pay yourself.

I had to skimp on food, and settle for a bit less in a number of areas, but I still paid myself first. You're making $8.50/hr? That's $340/week gross, probably what, $200/wk after taxes. You can't put twenty bucks a week aside? What are your bills? Eletric, water, gas, what else? Are you paying for cable? Drop it. Same with an internet hookup. But find the room to pay yourself first. You'll thank yourself in the future, when you have either a catastrophe or retire.

[slackmaster]

32. I put over $14K in my 401k last year

It wasn't easy.

[Bonobo]

26. B-But the Dow Jones... It's so HIGH!!

[question everything]

35. Ah, but they contribute to the economy

When 80% of our economy is service driven, it is our patriotic duty to spend and spend and spend.

:puke: