National Savings Rates
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Posted in : Economics:
- On : Apr 16, 2007
by Bruce Fenton
If you are short of something economic to worry about, try the American savings rate. The people of Europe might tell us that our economy is going down like a lead sled because we Americans are such poor savers. And, more than a few of the financial press seem to share that view.
The world is so concerned that we Americans save too little, borrow too much, and basically consume too much for our own good.
The problem is one of perception and definition. To begin, we need to be clear on the term “national savings rate.” The Bureau of Economic Analysis (BEA) defines the savings rate as the amount the U.S. population saves divided by its disposable income. Personal savings is calculated by taking personal income and subtracting from it personal contributions to social insurance, personal tax, non-tax payments, and personal expenditures.
Their measurements are totally out of touch with contemporary American wealth accumulation practices. Missing from the calculations are increases in wealth from short or long-term capital gains. Nor is wealth created from real estate by refinancing or selling counted. The numbers do not count gains from growth inside pension plans or IRAs. Neither do the numbers include valuations of business interests or growth in equity in investment real estate.
An article in Reuters® pointed out that despite the high savings rates in the growing economies of Asia, Asians need to learn to save “smarter” according to Jonathan Larsen, head of retail banking in Asia for Citibank®. He notes they tend to keep too much in cash. Traditionally this has been due to the relative immaturity of the investment markets.
As the middle classes develop in Asia, and they begin to put more of their savings to work in the markets, we can anticipate their savings rates to come down, their wealth to grow, and their consumer class to spend.
Not a bad equation for a stronger economy!
Bruce Fenton is a financial consultant, a writer, and the Managing Director of Atlantic Financial Inc. Bruce welcomes inquiries, comments, and questions. He can be reached by contacting The Fenton Report.
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