National savings rate…epic fail

Wanna see something that will make you cringe? It’s a graph of the United States Personal Savings Rate. As of mid 2009, the savings rate had reached a 17 year high (6.9%) as Americans conserved cash due to the declining economy. If the savings rate is at a ‘relatively’ high point, you might be wondering why the graph would be scary… well, check this ‘ish out!

Shame on us America, and by “us” I mean you, and by “you” I mean anyone that helped contribute to this dismal savings rate. There are a couple interesting things about this graph. The first being that from the 1960’s to the mid 1980’s, the savings rate held steady between 8%-11%. But if you look from the mid 1980’s to just before 2007, the savings rate had PLUMMETED from around 10% to 0% (including one year with a negative savings rate). That’s just plain embarrassing America.

Another interesting thing that can be seen in the graph; periods of recession (included in the gray shading) almost always resulted in an increased US savings rate. This is particularly noticeable in this most recent recession where savings went from 0% to 6.9%. You know what this graph indicates? That Americans suck really really bad at saving their money, and even worse, we don’t learn our lesson. Sure we might save more during recessions, but the second the recession has passed, we are right back to our old ways… living paycheck to paycheck, racking up debt, and making a$$e$ of ourselves.

There is an old adage that goes “Fool me once, shame on you. Fool me twice, shame on me” Unfortunately for America it goes a little something like this “Fool me once, shame on you. Fool me twice, shame on you. Fool me three times, shame on you…” When are we going to learn our lesson? Unfortunately, the answer is probably not until it’s too late…a.k.a. China comes and takes us over.

Don’t worry though, being the revolutionary voice of personal finance that I am (you think I am right?), I have a solution… make the US savings rate an Olympic event!!!! If there is one thing we Americans love it’s sports and America. Just imagine, a live feed of the US savings rate in comparison to all the other major countries of the world, during the Olympics. It would be just as exciting as watching Michael Phelps win his 8 gold medals (Dear Michael Phelps, if you are reading this, will you bear my children?). Seriously though, the only way I can think of motivating my American counterparts to save is by making it some sort of competition. If they knew how badly we sucked at this thing (especially when compared to other countries) it just might spark a long term savings attitude. Ah, a boy can dream right?

Do you think this recent savings boom is gonna stick around? Did we REALLY learn our lesson this go around? How can we teach/instruct/force people to save more? Are you currently part of the solution or the problem? According to this poll I ran a few weeks back, it seems like most PDITF readers are doing their part to save a decent amount of their take home pay. Kudos to you.

22 thoughts on “National savings rate…epic fail

  1. In this case, being doomed to repeat our history would be a good thing.

    Before I take it too literally though, how have the statistics on that graph been collected and calculated? Sometimes these type of statistics are skewed by differing methods of measurement at different times (i.e. unemployement figures).

    • Normally I would agree, but in this case does it matter? The trend is pathetic even if the data includes outliers.

      • The trend is certainly negative. Data outliers are not what I am referencing. There is a dated article about this statistic here http://www.bankrate.com/brm/news/sav/2006savmg/sa… Some excerpts are

        "When typical consumers hear "savings," more often than not they think about the portion of money stowed away for safekeeping in a bank or investment account. But to an economist, that emergency cash is not savings, but instead is considered "wealth.""

        "Beyond shortcomings in data collection, Laufenberg adds that he believes the BEA's definition of savings is itself fatally flawed. That's because the BEA designed its calculations to reflect income earned during the production of some good or service during the period being measured. This strict definition means some big income sources get excluded. "Capital gains does not fit that definition, and therefore are excluded from the measure. … Benefits from private pension plans are not counted as income because some portion of the benefits are paid from capital gains," Laufenberg says. "How meaningful are such exclusions?""

  2. The natural tendency is to spend when times seem good and to save when they seem bad. I've fallen victim to it too. But in reality the smart thing to do is to save when times are good so you have enough to spend when times are bad (spending being the most effective way to lift an economy out of recession). I'm not big on the Bible or religion in general, but remember the story of Joseph and Pharaoh's dream in Genesis: there were 7 fat cows representing 7 fat years, and 7 lean cows representing 7 lean years. Joseph advised saving 20% during the 7 fat years, and in this way the Egyptians had enough for the 7 lean years and could sell grain to people who hadn't saved themselves during the fat years.

  3. Why would American's save when credit was so darn easy to get? And no, I think we're going to go right back into our spending ways once the economy recovers. It may be like after the Great Depression where the generation that lived through it was very thrifty but their kids weren't, but I have a nasty suspicion we're gong to just get ourselves in trouble again.

  4. I think you are missing a major shift in what constitutes “saving”. From 1960 – 1980’s and even into the 90’s, the primary source of retirment income was a full pension or social security. With the retirement safe, Americans were able to take 10 or 15% of their income and save it for rainy days or vacations. As anyone employed these days knows, there is no such thing as a full pension. Now, retirement (excluding the matching 5%) is on the employee, not the employer. I put 5% of my paycheck into my company’s matching 401K, I put another 3% into a Roth and I contribute a final after tax 5% to my online brokerage account to invest as I see fit. By my logic, I’m saving 13% of my paycheck each month (and usually a fair bit more as I transfer any leftover money to my online savings account). However, in the graph above, my savings rate is considered to be 0-5% depending on my online contributions.

    True, some people live paycheck to paycheck but I think a lot more are saving the way I am. So maybe not quite the shame on America you think there is.

    Love to hear your thoughts on that.

  5. Recessions are two or more consecutive quarters of negative gross domestic product (GDP). This defines the gray bars. GDP has four parts: consumer spending, business spending, government spending, and net imports (the last is negative in the US). Consumer spending declines when people save more, which decreases GDP. This is why higher savings rates decrease GDP, which can contribute to recessions. It's also a shortcoming of the GDP statistic in measuring economic health (and no, there isn't a better alternative).

    I would say that the fact that there is a relationship between GDP contraction and consumer spending does not imply that GDP contraction drove consumer savings. Rather, it's more like GDP is a car and consumer savings is the brake pedal, which can bring us back to a safe speed for curves and rough roads but slows down the car, at least temporarily. (Although if we crash, it's going to be a lot worse if we didn't hit the brakes.)

  6. Just now starting to save…I did not do a good job in my first years out of college, but now I am putting 10% of all income into savings. I figure it is best to stick with this pattern throughout my lifetime.

  7. My wife and I are huge savers…unfortunately it's burning a hole in our pockets. Trying to find that balance between saving and living is tough. However, I think we will err on saving too much than living too much because we are conservative in general. As for the rest of the country, I think until people go hungry, people will spend like there is no tomorrow.

  8. its amazing. the richest country in the history of the world, and most of the people are living paycheck to paycheck, in debt up to their eyeballs, and broke. it's crazy. It may be too late for our government to change, but the people can change their financial situation.

  9. America is very shameful. Their savings rate is pathetic. Did you know that in other countries such as Asia, there is no such thing as credit cards? If you want to buy something you have to pay FULL in CASH. And believe me, living in asia some asian country is not cheap. That means someone has to have $200K-$500K in cash for a house or even $30K-$50K in cash for a car. You tell me America. Shame on us and I hope to have nothing to do with this sad savings rate.

    http://moneyhoneysf.blogspot.com/

    • So that does not include automatic 401(k) contributions. It would include IRA contributions, however. 401(k)s started to become popular in the mid-late 80s and into the 90s, and became mainstream after. So that could account for the drop.

      I take back what I said above, there is way to much data excluded from these statistics to draw any conclusions.

  10. Hmm is that graph going up substantially near 2010? (I would think so since I heard that the savings rate has increased because of the recession). I guess the recession is good for SOMETHING– to tell us that we should stop living a life of excess and instant gratification and start saving for the future!

  11. I'm sure someone may have already said this above, but I'm far too lazy and have WAY too many PDITF posts to catch up on from the last week to read all the comments as well.

    But you can also notice a generational trend in the savings spikes. Each generation has to have their own recession before they learn to save. And the big "decline" is really the baby boomer generation not really getting the whole savings thing. We have a spike after a recession. People start to save again, then a whole new generation comes along who hasn't had a recession and they don't think saving is a big deal and BOOM they get a recession.

    It is an endless cycle.

Comments are closed.