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Re: 2006 personal savings drop to 74-yr. low
Old 02-05-2007, 06:00 PM   #81
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Re: 2006 personal savings drop to 74-yr. low

Quote:
Originally Posted by 2B
Hayes was also quite a disappointment.
Not to mention Woodrow Wilson.

John Adams was a bit of a b$%&"!d too.
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Re: 2006 personal savings drop to 74-yr. low
Old 02-05-2007, 07:08 PM   #82
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Re: 2006 personal savings drop to 74-yr. low

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Originally Posted by bpp
John Adams was a bit of a b$%&"!d too.
I'll take issue with you on John Adams but I suspect you are not serious.
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Re: 2006 personal savings drop to 74-yr. low
Old 02-05-2007, 07:30 PM   #83
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Re: 2006 personal savings drop to 74-yr. low

I heard this on Prairie Home Companion Joke Hour this Saturday.

Picasso dies and goes to heaven. St. Peter asks him to prove he is who he says he is, so Picasso paints a couple of his tried and true and voila, he's in.

Einstein dies, same drill. Gotta prove who he is, so he gives St Peter about 7 pages of complicated theories, equations, etc. In he goes.

George W. Bush dies, goes to heaven and St. Peter says, Look, Picasso and Einstein proved who they were, so you must do the same.

"Who's Picasso; Who's Einstein?" says GWB.

Come on in George, says St. Peter.
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Re: 2006 personal savings drop to 74-yr. low
Old 02-06-2007, 04:45 AM   #84
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Re: 2006 personal savings drop to 74-yr. low

This stat has little value.
It takes reportable taxable income and subtracts out spending as measured by the goverment to arrive at savings.
It does not factor in traditional iras, 401k's, sep iras and related retirement accounts.
It also does not factor in income that is not reported, expenses that are overreported and the fact that taxable income is underreported so that people can keep their taxes down.
It also does not factor in the underground economy.
If the underground economy; drug trade, prostitution, jobs for cash is 5 percent of the economy the savings rate is 5 percent. I don't think anyone would argue this facet of the economy is not more than 1 percent in any event and it very well could be 5 or 10 percent. Some estimates suggest there very well could be more US currency outside of the country than in it so perhaps the underground market is far larger than anyone guesses.

Combine these factors together and it shows tax deferred savings are up, savings in taxable accounts are down, and the underground economy is unknown.

I also have issues with the way it calculates spending versus saving.
Spend $200 a month to lease a car and for the year you are calculated as savings more than someone who spends 2500 to buy a car outright.
The same with housing. Someone that spends $6000 a year in rent is calculated as saving more than someone spending $6001 a year to buy a house. Also a lot of other areas of spending result in wealth generation that are written off entirely such as collectibles, home improvement projects and so on. Food, clothes and other things have some retained value after purchase also. Clothes are worth at least a few percent of purchase value before a year ends. People often store up a months supply of food at year end also. Thats not calculated. There also is no mention of inflation not sure if its even included. If so a $1 of savings on january 1st should be worth more than one on december 31st. The fact that its not suggests perhaps the figure can never be that precise.

Pretty much a fairly worthless statistic meant to scare people in any event.
I think changes in wealth year to year are a better indicator of overall savings. Just take figures from the census bureau or the Federal reserve survey of consumer finance and figure the change year to year. This doesen't exactly report savings but its a far better figure than the other way of doing it. You can even subtract out x percent of the figure to account for the percentage of wealth that generates income. Would be still just estimational though.


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Re: 2006 personal savings drop to 74-yr. low
Old 02-06-2007, 05:58 AM   #85
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Re: 2006 personal savings drop to 74-yr. low

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Originally Posted by firstmark
This stat has little value.
I agree

Quote:
Originally Posted by firstmark
It does not factor in traditional iras, 401k's, sep iras and related retirement accounts.
Wrong. The figure does include indivividual contributions to their IRAs, 401Ks, and it even counts the employer contributions to these accounts as savings. The figure does not include the growth of these accounts due to capital gains.

We've been over this a few times, the calculation method is covered in depth earlier in this thread.

The figure isn't entirely worthless. If you want to know how much of their income people are saving, then this figure does a pretty good job of communicating that. There aren't many folks paying off their mortgage early in order to save for retirement, rather than investing in other areas (at least if the mortgaeg company ads I hear are any indication). As noted earlier, it is important to recognize the limits of the information communicated by the savings rate figure.
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Re: 2006 personal savings drop to 74-yr. low
Old 02-06-2007, 10:50 AM   #86
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Re: 2006 personal savings drop to 74-yr. low

The stats don't include most retirement contributions a lot of sources say that.

http://news.yahoo.com/s/afp/20070204...r_070204165145

states "Countering the alarm bells, American University's Starr pointed out the savings rate does not take into account household assets, such as home ownership, or pre-tax contributions to retirement savings accounts, known as 401(k)."


http://money.cnn.com/2005/08/02/news...ings/index.htm

states "Any money directed into 401(k) plans is considered to be part of take-home pay in the government calcuation. But that 401(k) money isn't available to spend.

Take a person who contributes 10 percent of income to a 401(k). If the government counts him or her as having a zero savings rate, he or she is actually spending about 10 percent more than the actual take-home pay, liquidating assets or taking on debt to support spending."


After looking a bit I see http://www.fa-mag.com/news.php?id_content=4&idNews=776 claims someone from the commerce department says it does.

So Yahoo and Cnn both get it wrong?
I think it counts it in that it is taken out of the equation to not count against you. You earn 25,000 contribution 2000 to 401k your income is then 23000 for calculations taxes are taken out and its figured from there.
I will look further to see if I can find the commerce departments exact method of calculating it.
If major news outlets are getting it wrong across the board I think the exact method needs to be looked at further. Anyone have any sources that clarify that 401k money does not count?

After looking at http://www.bea.gov/bea/newsrel/pinewsrelease.htm the bureau of economic analysis page it appears they are counting employer paid for
pension and social insurance contributions as income.
That would make the income figure a bit higher and factor in those things. Ironic that employer insurance premiums would seem to make savings rates higher if I follow their method.
I don't see any mention of 401k being calculated at all. Could be though.

I see personal income is defined at
http://www.blm.gov/nhp/Commercial/So.../glossary.html
as
PERSONAL INCOME: The sum of wage and salary disbursements, other labor income, proprietors' income, rental income of persons, personal dividend income, personal interest income, and transfer payments to persons, less personal contributions for social insurance.

It seems having $5000 in dividends each year and spending it all woudl reduce your savings rate more so than not having 5000 in dividends. Thats ironic, so people who receive more income from earnings on past savings would have a lower savings rate consequently. I assumed dividends and interest were not counted in the equation but they seem to be.
I still don't see a definitive statement that pre 401k money is counted. I think they don't even count it at all just let the income part be higher then subtract out spending and its assumed 401k money and other savings money plus spending equals income. They aren't even calculating the easy reportable savings into the equation directly it seems.

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Re: 2006 personal savings drop to 74-yr. low
Old 02-06-2007, 10:56 AM   #87
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Re: 2006 personal savings drop to 74-yr. low

Quote:
Originally Posted by firstmark
The stats don't include most retirement contributions a lot of sources say that.
Anyone have any sources that clarify that 401k money does not count?
Yeah, as advised...read the thread. I already quoted the guy who creates the stat saying that it DOES include all retirement contributions (with some already determined exceptions).

401k's are included.

And yes, many of the media outlets totally whiffed on this whole thing. They got snagged on the catch that the capital gains in those accounts isnt taken into consideration.

So go back to page one, take a few minutes to read, all is explained with links and sources.
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Re: 2006 personal savings drop to 74-yr. low
Old 02-06-2007, 11:11 AM   #88
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Re: 2006 personal savings drop to 74-yr. low

So they blindly calculate income minus out spending and don't do any figuring for 401ks at all. Its assumed income minus spending would = savings and that woudl include 401ks iras and so on.
Thats the least effective way of figuring it. To know how its truly figured we need to know how spending is defined. The only components in their formula are reportable taxable income and spending.
Not sure what they use for spending figures.
If they are caluclating as I think they are then debts aren't even calculated in the equation either just current yearly spending. So someone way in debt that spends $1 less on a loan a year with a commitment for 50 years versus someone that buys something outright and has savings woudl be determined the lower saver.
Its like calculating spending based on a monthly payment plan.
I wonder what they use for spending.
It seems the goverment calculates the savings rate without directly figuring debt or yearly savings at all. That seems like the goverment way of doing it.

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Re: 2006 personal savings drop to 74-yr. low
Old 02-06-2007, 11:14 AM   #89
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Re: 2006 personal savings drop to 74-yr. low

Ding! Ding! Ding! Its a weird stat of limited use, IMO.

Look at the commerce departments web site to see how they calculate it. Theres some flakey stuff around how they determine spending too.
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Re: 2006 personal savings drop to 74-yr. low
Old 02-06-2007, 11:35 AM   #90
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Re: 2006 personal savings drop to 74-yr. low

I see they state
" Personal income is also equal to national income less corporate
profits with inventory valuation and capital consumption adjustments,
taxes on production and imports less subsidies, contributions for
government social insurance, net interest and miscellaneous payments,
business current transfer payments, current surplus of government
enterprises, and wage accruals less disbursements, plus personal
income receipts on assets, and personal current transfer receipts.
2. Equals disposable personal income deflated by the implicit price
deflator for personal consumption expenditures."

Nice and clear. Now we have national income and personal income I wonder what national income is exactly.
So if one owns stock in companies that save/retain earnings that doesen't count either. If I own $10 million worth of stock in companies that retain/save $1 million a year then its like thats not a part of my savings. And if I get dividends which are a part of my savings via this indirect method then my savings rate appears lower than someone who has no savings in stocks and gets no dividends. It seems your wealthiest people would often rank the worst as far as savings if they just spend their dividends.
This formula makes it so retained corporate earnings are not good, investment in long term things is not good, and past savings can actually make the stat appear worse.

The IRS suggests at http://www.irs.gov/newsroom/article/...137247,00.html that undereporting of taxes amounts to 300 billion per year
The personal income figure suggested is about 11 trillian. So figure an average tax rate of 15 percent to be conservative and thats 2 trillian undereporting of income. I imagine most underpaying of taxes is due to undereporting of income in various ways.
Take 3 trillian more and savings rate is 20 percent. Of course some of the income will nto count as personal income and would be business income or what nto. But the amount of money and its effect on the calculation renders even not counting retirement savings at all a smaller percentage problem even though they try to count it indirectly.
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Re: 2006 personal savings drop to 74-yr. low
Old 02-10-2007, 06:33 AM   #91
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Re: 2006 personal savings drop to 74-yr. low

Go to Yahoo! Finance, look at the videos section, there is a video called "Saving in the USA" which is an interview with Dave Ramsey about this report. He claims that 401ks are not included in the statistic. I don't know if that's true or not, but it seems to be widely reported.
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Re: 2006 personal savings drop to 74-yr. low
Old 02-10-2007, 09:44 AM   #92
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Re: 2006 personal savings drop to 74-yr. low

Since as reported, the guy who makes the stat says that it IS included, I think that provides some insight to the quality of reporting.

What they probably mean, or got screwed up on, is that 401k GROWTH, along with home equity, are not included. But the original 401k contributions are.

Its really pretty simple: gross payroll is what they're taking for the income portion. Your 401k contributions com out of gross payroll.
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Re: 2006 personal savings drop to 74-yr. low
Old 02-10-2007, 09:59 AM   #93
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Re: 2006 personal savings drop to 74-yr. low

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Originally Posted by Cute Fuzzy Bunny
Since as reported, the guy who makes the stat says that it IS included, I think that provides some insight to the quality of reporting.
I was probably the first one to say 401k contributions weren't included based on my exposure to the financial media. In the face of CFB's info, I defer to the guy who supposedly does the report -- and CFB's brilliance, of course.

I still find it unbelieveable that the USA has a negative savings rate. The concept of unreported income is an interesting twist. That doesn't include me and I still have a positive savings rate over 25% with the company contribution and other payments. Most of the people I work with put something into their 401k.

The wrinkle I do see is that all of the people on pensions, SS or just spending their nestegg in retirement are spending without savings. Our "leisure class" which I hope to soon join are guaranteed massive negative savers. I am assuming that since pension benefit contributions are considered income by the report that their payment to the recipient is not. Hence, all retirement spending is negative savings. When my stash is tapped, it will be composed primarily of capital gains. Selling inflated assets or pulling out of my IRA is not "income" but the spending is once again negative savings.

Is this the factor that makes it look so bad?
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Re: 2006 personal savings drop to 74-yr. low
Old 02-10-2007, 02:36 PM   #94
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Re: 2006 personal savings drop to 74-yr. low

CFB, I am still trying to understand this. Let's use some hypothetical numbers:

Let's say John Doe earns 100k gross this year. Let's assume he pays a combined 25k to federal, state, SS and medicare payroll taxes. That leaves him with 75k after taxes. Now lets assume he contributes 10% of his gross income into his 401(k), and his employer matches his contribution up to 3% of his salary, so he contributes a total of 13k to his 401(k). Let's further assume he spends 65k, which all of the remainder of his income (100k - 25k - 10k). What is his savings rate as defined by the government? Is it his gross income, minus taxes paid, minus expenditures, then divided by the gross income? If so it would be either 10% (10k divided by the 100k gross income, before matching), or is it 12.6% (13k divided by 103k, which is the gross income, plus the matching contributions), or is it some other number? If it is 10% or 12.6%, then indeed you are correct that the 401k savings are accounted for in the gross income number since they weren't subtracted as "expenditures".

However, what about this wrinkle? If we assume that John Doe is like many Americans who use credit to finance their lifestyle, what if he spends 75k (he makes up the difference contributed to the 401k by using credit), so at the end of the year, he has contributed 13k to his 401k, but he also incurred 10k in consumer debt (setting aside interest). Using these assumptions, and following the government's definition of savings rate, what is John Doe's savings rate then? Would it then be zero because the total expenditures equaled the total after tax income? Would it be 3% because he got the free money matching funds from his employer? If that is true, then it makes sense, since the credit spending essentially cancels out the 401k contributions, and it is entirely likely that many people have "savings" which were made possible by credit spending, but which are not really net savings at all.
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Re: 2006 personal savings drop to 74-yr. low
Old 02-10-2007, 04:48 PM   #95
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Re: 2006 personal savings drop to 74-yr. low

Just Curious,
- Here's the link, again, to the govt page that shows exactly how the figure is computed .http://www.bea.gov/bea/newsrel/pinewsrelease.htm

- In your first example, John's savings rate would be:
100,000 (gross income)
+ 3,000 (employer match to 401K, which is treated as income)
- 25,000 (taxes)

equals: $72,000. He spent $65,000, so his savings rate is 9.7%

In your second example, all his income numbers are the same, but he spent $75,000, so his savings rate is -4.2%

You are right about the credit spending causing the numbers to be lower. Undoubtedly folks are taking out HELOCs (which tap into their home's equity--the increase in this equity is NOT counted as income, as noted previously).

Clear?
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Re: 2006 personal savings drop to 74-yr. low
Old 02-10-2007, 05:06 PM   #96
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Re: 2006 personal savings drop to 74-yr. low

Quote:
Originally Posted by samclem
- In your first example, John's savings rate would be:
100,000 (gross income)
+ 3,000 (employer match to 401K, which is treated as income)
- 25,000 (taxes)

equals: $72,000.
This actually equals $78,000
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Re: 2006 personal savings drop to 74-yr. low
Old 02-10-2007, 05:14 PM   #97
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Re: 2006 personal savings drop to 74-yr. low

Hey, thanks, you're right! I blame brain-fry from doing my taxes today (you can image how screwed up they are if I can't add!).

So, corrected savings rates are:
Example A: 16.6%
Example B: 3.8% (positive)
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Re: 2006 personal savings drop to 74-yr. low
Old 02-10-2007, 07:53 PM   #98
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Re: 2006 personal savings drop to 74-yr. low

I understand it now. The personal savings rate is determined by adding up all personal expenditures and then subtracting that number from after tax income. Whatever was NOT spent was assumed to be saved. And of course, since 401k and other retirement contributions must come from gross income, and since they are not counted as expenditures, they are, by definition, included in the savings rate.

It really is amazing how the financial press continues to get this wrong. Right now on Yahoo Finance there is a video interview by Niel Cavuto from Fox News of Dave Ramsey where they both say that 401k contributions are not included in this number. Geeez. No wonder it's hard for people to understand the truth.

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Re: 2006 personal savings drop to 74-yr. low
Old 02-10-2007, 08:27 PM   #99
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Re: 2006 personal savings drop to 74-yr. low

The published savings rate reduces a fairly complex picture to a single number.

It includes retirees, who have a savings rate of something like -12%. And each year we have a higher percentage of retirees, so the national savings rate will probably continue to decline.

We are also moving from a large number of workers with pensions to very few with pensions. Companies are better at saving via pensions than individuals are on their own.

Here's an article from last year's version of this same debate:

link
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