If you saved money this year, you’re one of the few. According to the Commerce Department, the savings rate fell to -1%, meaning that not only did people spend all the money they earned in 2006, they borrowed some as well. This number was the lowest rate of savings since 1933, which, in case you’ve forgotten, was during the Great Depression.
From USA Today:
The savings rate has been negative for an entire year only four times — in 2005 and 2006 and in 1933 and 1932. But the reasons for the negative savings rates were vastly different during the two periods.
During the Depression, when one-fourth of the labor force was without a job, people dipped into savings to pay for the basic necessities.
Economists have put forward various reasons to explain the current lack of savings, among them: a feeling on the part of some people that they do not need to save because of the run-up in their investments, such as homes and stock portfolios; and an effort by middle-class wage earners to maintain their current lifestyles even though wage gains have been depressed by global competition.
This shit is just unwise, y’all.—MEGHANN MARCO
Consumer spending, incomes up in December; savings rate worst since 1933 [USA Today]
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You know, most people nowadays contribute to a 401k type of savings plan instead of tucking all of their cash in a passbook savings account. No such thing existed for the common man back in the 1930s.
Take into account the return on investment on a 401k (10% or higher) vs a passbook (3%) and add to the fact that a savings acccount is taxed vs a 401 which is pre-tax (also lowers your taxable rate).
Meanwhile those with a agenda love to post these kind of sensationalist articles so they can knock-down that strawman in pursuit of a hidden agenda.
If the report counts things like student loans, anybody who went to college and needed them won’t thave a positive savings rate until they’re in their 40s or 50s no matter how much they save.
So…. an entire generation of people are stuck in a black hole of negative savings, not because of credit card debt or rampant consumerism (though those are major problems), but necessary things like federal student loans, etc.
That’s if they’re counting student loan debt in the report. If they are, then I wonder what it would look like if they didn’t count it… probably not much different.
It is a bit misleading based what the commentoers so far have pointed out. Reagrdless, most Americans, it should be pointed out have little or no liquidity availble for emergency situations. Thus resulting in credit card debt, second mortgages, bad debt, etc. While the data may be a misleading it still means that we all need to save more, spend less, and stop living paycheck to paycheck.
While I do contribute to a 401K, I have no money left to save until I pay down my $18000 debt. For some people paying off their debt before saving is a better idea and for other spending all their money is an even better idea.
While I contribute to a 401K, I don’t save money until I’ve paid down my $17000 debt. For some people paying off debt is their #1 priority and for others it is spending all their money.
snapmarco: I wouldn’t worry too much about that debt. It seems to have reduced by $1000 in the two minutes between those posts. By 7.56 you should be all square.
There seems to be some confusion here.
A negative savings rate is is just that – a negative savings rate. Not a conspiracy theory, not a skewed measure due to student loan debts – it means we’re spending more than we make as a nation. And even if you don’t agree with the final number, the fact is that it is falling, steadily. Volatilities are not included.
Investing – no matter how you do it, or how they did it 70 years ago – is a separate issue, and no excuse for not saving money. Investing also does not always make money. Savings is not about a great rate of return, its about having money. For expenditures. For emergencies. For vacation. For furniture. For fun.
Credit card debt not to blame? That $711 billion owed nationally on credit has nothing to do with it? Up from some $630 billion last year. Seeing as credit card debt is pretty well the opposite of saving, it will have an effect. The increased prevalence of home-equity loans don’t help much either. FRB Chairman Greenspan had a lot to say about this.
And yes, anyone who doesn’t pay off their student loan until they are 40 or 50 is stuck in a black hole, but who says they have to live that way? Who says they couldn’t do something crazy, like pay it off? Early. Way early.
Pay off your debt, and you can do this thing called saving. You could even have a positive net worth.
I liked this post … very informative. I think the reasons include
credit card use, a society geared towards overspending, and lack of
good financial habits. I just posted about this on my blog:
How to Stop Living Paycheck to Paycheck
http://zenhabits.blogspot.com/2007/02/how-to-stop-living-p…
I think that 401K’s are savings plans. Yes they are classified as investments and yes investments can lose money but over the long haul the stock market has been a pretty sure thing. The whole point of a 401K is to have money for your retirement. And that is one of the key things about savings.
So while I agree that it is good to have liquidity and I am shooting for that mythical 3 months salary in the bank goal I do think that stories like this one make things look worse than they are.
Tonguetied: nope, they’re not. Savings deposits are insured; 401ks are not. That’s why people who put their money in S&Ls didn’t lose their shirts when so many S&Ls went teats-up in the eighties. Saying that the stock market in general goes up over the long run is cold comfort if you need money for an emergency right now, and your 401k is one of the badly-managed ones.
Front_Towards_Enemy: It’s really not an either/or proposition. You can have 401ks, mutual funds that you can withdraw from without penalties, and cash savings accounts that have a modest return but, as I noted above, are market-proof. I think that the concern is that more and more people are treating their credit cards as if they were savings accounts, since they can get cash advances if their checking account is running dry. Based on your comment in an earlier thread, I’m sure you understand what the problem with this is.