There was a lot of talk a while back about how the 2005 American personal savings rate fell into negative territory for the first time since the Great Depression. Journalists cried, “We’re spending more than we make!” To make matters worse, the 2006 personal savings rate was also negative.
What is the “personal savings rate,” anyway? It’s basically personal income minus expenditures — what you make minus what you spend. If you make $50,000 and spend $49,000, your personal savings rate is 2%. The graph below says it all. 2005 starts a trend of negative personal savings for Americans, with the blue bars pointing downward, quarter after quarter.
Images provided by Losing Money To Inflation
Then a miracle happened. Someone at the U.S. Bureau of Economic Analysis must have said, “Gosh, that graph looks really ugly with all those blue thingies pointing downward. Let’s make a new graph.” And that’s exactly what they did. They released the following updated graph:
Good news. Now all the bars are in positive territory except for one quarter. Ahhh, that looks much better. Americans have been saving money after all! What happened? I have no idea. The revised graph does not offer any explanation, nor does it state that it’s revised. It’s just there. Perhaps the statisticians found a flaw in their previous model. Perhaps they just faked the numbers. It does, however, make one ever more distrustful of financial data released by the government.
One thing that is for sure about the U.S. personal savings rate is that it is a bit misleading, even if the revised numbers presented are accurate. It excludes 401k contributions. If a guy spends everything that he makes but still socks away 20% of his income in his 401k account, his personal savings rate is still zero. Home appreciation isn’t considered either.
Maybe the government could revise the home value graphs for 2007 and 2008. I think that might make me feel better.
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4 responses so far ↓
1 Gina Gardner // Apr 22, 2008 at 7:55 am
Nice reporting job, Wade. Our savings rate is a disgrace (I think we’re keeping with the “Act Your Wage” theme here quite nicely). I can’t count how many loans I have done for million dollar plus homes where the borrower had next to nothing saved. I had to do a review and create a quiz based on Bill Bradley’s book “The New American Story” and reading it was an eye-opener for many reasons. In it he rightly claims that our citizens manage their finances about as well as our government has been lately — major deficit spending.
Bradley states, “When people don’t save and corporations don’t save for them, they cannot have a comfortable retirement. Thirty-five percent of senior citizens have no pension other than Social Security. Fifty percent of all Americans own no stocks. If you’re between 55 and 65 years of age, the Federal Reserve says you should have $314,000.00 in your pension account. The average is $60,000.00.”
Scary.
2 VA Refinance // Apr 22, 2008 at 1:28 pm
Great Post Wade, and great comment Gina. WHne it comes to graphs and statistics they are only as good as the person that made them. they can always be manipulated and trans figured to make one thing or another look good. With graphs I can make it look like my LOs are great at what they do or I can find out that thier conversion rate is in the dumps. either way the government is never going to explain what and why they do what they do we just need to make sure that we are doing what we need to do so that we and our family is taken care of.
3 Austin Real Estate Blog - Ki // Apr 23, 2008 at 10:23 pm
Thats pretty interesting. I read a lot about the negative savings rate two years ago. I’m surprised this is the first I have heard those stats were not accurate.
Although it still looks like the savings rate came down in 2005.
4 Shailesh Ghimire // Apr 25, 2008 at 9:11 am
Wade,
Great analysis. However, despite the revisions the trend is still not positive. Also factoring in the recent declines in home prices I’d say folks are really stretched and it appears quite a few are living pay check to pay check. Not a healthy sign for long term growth in my opinion.
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