USA Savings Rate at Lowest Level Since 1933 January 30, 2006
The [US] Commerce Department said Monday that consumer spending rose by 0.9 percent in December, more than double the 0.4 percent rise in incomes
…To finance the increased spending, Americans dipped further into their savings, pushing the savings rate for all of 2005 into negative territory at minus 0.5 percent. That was the lowest annual savings rate since a decline of 1.5 percent in 1933, a year in which the country was struggling to cope with the Great Depression.
A negative savings rate means that Americans spent all their disposable income, the amount left over after paying taxes, and dipped into their past savings to finance their purchases. For the month, the savings rate fell to 0.7 percent, the largest one-month level since a decline of 3.4 percent in August.
Families from the rest of the world on a whole have their acts together financially more than American families. According to the UK’s Office for National Statistics, the UK’s savings rate is currently about 5% of household income. In Japan, it’s more. When increases in spending are financed by borrowing and refinancing home mortgages, that gets us in trouble, especially when interest rates rise. Some might say that our economic growth depends on consumer spending. In Japan, where the economy has been pretty much flat for the last decade, people are saving more and being smart about their finances. Do we need financial intervention? It depends on your own goals.
Source:
Savings Rate at Lowest Level Since 1933
By MARTIN CRUTSINGER, AP Economics Writer
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[…] After technology stocks crashed in 2000 and in 2001, the 9/11 incident in NYC, it makes sense that the average income of American families declined. Although the economy in America is reported to be strong now, companies are cautious about their spending. As for net worth, I’m not sure if that includes the values of their homes or stock, but if so, a net worth increase of just 1.5% from 2001 to 2004 is pretty small. (The negative savings rate as reported earlier doesn’t include the value of the home or stock portfolio). With the inflation rate at around 2%, decline in family income, and net worth, it’s obvious we have to take steps to create a better spending plan and save for our future. The USA can’t count on our home equity as a source of money too long! […]
[…] While we’re on the topic of China and how their personal savings rate is 30%, (vs. -0.4% in USA), let’s take a look at their taxation laws. […]
[…] Books, financial advisers, personal finance blogs often suggests that earners save 10% of what they earn. Since the US national savings rate is in the negative territory now, in the consumerism society of the USA, how is it that everyone expects America to save 10%? I’ve always wondered about that 10% number. None of the publications I’ve read were that clear on whether that 10% is pre-tax or after-tax or is it 10% of your disposable income. I know it doesn’t really matter, because either way, saving something is better than spending more than you earn. But it can make a difference. For example, the difference between my pre-tax savings of 10% and after-tax savings of 10% is approximately $5000. […]
[…] Here’s a non-technical analysis on what’s going on now. According to this CNN/Money article, net household wealth hits record high, but debt rose at the fastest rate since 1986, the Federal Reserve said on Thursday. At the same time, America has a negative savings rate. So let’s summarize the household financial status this year, […]