Negative Savings

[retire@40]

The FIRE club may not be getting too many new members if this continues:


Mar 06 Apr 06 May 06 Jun 06 Jul 06 Aug 06 Sep 06 Oct 06

Personal saving as a percentage of
disposable personal income.............. -.4 -1.0 -1.6 -1.5 -1.7 -1.3 -.7 -.6

Source: http://www.bea.gov/bea/newsrel/pinewsrelease.htm

 

[MasterBlaster]

There was a thread on this topic and how this savings statistic is very misleading...

http://early-retirement.org/forums/index.php?topic=8557.15

These savings rate statistics aren't defined as the way that you and I think of savings. They are defined as to how much you have in checking or passbook or CD savings acounts. They don't include mutual funds or stocks and bonds. So the savings statistic measures how much you have in bank account savings accounts. IRA's and 401k's are mostly excluded based on their composition.

Do you have much of your stash in the bank proper

However, the boomers could certainly, as a group, save more. There is no doubt about that.

 

[bongo2]

There was a thread on this topic and how this savings statistic is very misleading...

http://early-retirement.org/forums/index.php?topic=8557.15

These savings rate statistics aren't defined as the way that you and I think of savings. They are defined as to how much you have in checking or passbook or CD savings acounts. They don't include mutual funds or stocks and bonds. So the savings statistic measures how much you have in bank account savings accounts. IRA's and 401k's are mostly excluded based on their composition.

In that thread you claimed that the "savings rate" is just bank deposits, but didn't several people disagree with you and offer references saying it was measured as income minus spending?

 

[Texas Proud]

There was a thread on this topic and how this savings statistic is very misleading...

http://early-retirement.org/forums/index.php?topic=8557.15

These savings rate statistics aren't defined as the way that you and I think of savings. They are defined as to how much you have in checking or passbook or CD savings acounts. They don't include mutual funds or stocks and bonds. So the savings statistic measures how much you have in bank account savings accounts. IRA's and 401k's are mostly excluded based on their composition.

Do you have much of your stash in the bank proper

However, the boomers could certainly, as a group, save more. There is no doubt about that.

Did a quick look and you are not correct... but, as someone pointed out, you have been told this before and still do not want to change your statement..

 

[retire@40]

There was a thread on this topic and how this savings statistic is very misleading...

http://early-retirement.org/forums/index.php?topic=8557.15

These savings rate statistics aren't defined as the way that you and I think of savings. They are defined as to how much you have in checking or passbook or CD savings acounts. They don't include mutual funds or stocks and bonds. So the savings statistic measures how much you have in bank account savings accounts. IRA's and 401k's are mostly excluded based on their composition.

Well, they do list interest and dividend income as subsets of receipts on assets in the formula.

Personal income receipts on assets
Personal interest income
Personal dividend income

 

[MasterBlaster]

Did a quick look and you are not correct... but, as someone pointed out, you have been told this before and still do not want to change your statement..

TP:

Thanks for the scolding I'll be sure to check in with you before I post next time.

perhaps what I should have posted is that, depending on the definition du jour, the savings rate may exclude investments in non traditional savings vehicles. Per some definitions my first statement is indeed correct.

Nonetheless the savings rate is at least partially misleading as it usually does not include capital gains in the formula.

 

[samclem]

TP:

Thanks for the scolding I'll be sure to check in with you before I post next time.

perhaps what I should have posted is that, depending on the definition du jour, the savings rate may exclude investments in non traditional savings vehicles. Per some definitions my first statement is indeed correct.

Nonetheless the savings rate is at least partially misleading as it usually does not include capital gains in the formula.

Well, if the "savings rate" is intended to show what percentage of their income people are actually saving, then I think the present measure does a good job. If I were to tell someone how much I had socked away in savings during the previous year, I wouldn't include the appreciation on my stocks and bonds. In fact, by including dividends and interest as "income", you could make the case that the "savings rate" figure actually overstates the amount of savings that is occuring, if we define "savings" in the commonly understood way (e.g. the %age of your earned income you put into savings/investments).

Now, if you want to know if people are "getting ahead," the figure to track is net worth minus home value. I dont think anybody publishes this.

 

[Gone4Good]

Can't wait to join the club

 

[macdaddy]

I'm confused, does that include 401ks and other qualified retirement accounts or not?

Like sam said, I would love to see a net worth minus primary home value stat, but this would probably be difficult to collect on everyone.

 

[samclem]

I'm confused, does that include 401ks and other qualified retirement accounts or not?

Like sam said, I would love to see a net worth minus primary home value stat, but this would probably be difficult to collect on everyone.

Yep, 401ks and IRAs are included in this savings rate calculation, just like other savings.

The "savings rate" adds earned income, interest and dividends from all accounts (whether 401K, IRA, or "regular), etc and calls this "income." The "savings rate" is the difference between this "income" and expenditures. As noted previously, the appreciation of assets isn't included in the savings rate calculation.

But, imagine this case: Joe has quit his job, he has no earned income. He has $100K in a savings account earning 5% interest. He made no deposits to the bank this year, and withdrew $4000. Most of us would consider Joe to be using up his assets, but according to the way savings rate is calculated, he is a net saver--in fact, at a savings rate of 1% per year, he's well ahead of the US average.

 

[Texas Proud]

TP:

Thanks for the scolding I'll be sure to check in with you before I post next time.

perhaps what I should have posted is that, depending on the definition du jour, the savings rate may exclude investments in non traditional savings vehicles. Per some definitions my first statement is indeed correct.

Nonetheless the savings rate is at least partially misleading as it usually does not include capital gains in the formula.

Please go re-read you OP... you did not say what you are saying now... and your first statement is very very misleading to someone who does not have any knowledge... and I did read the other post and you had said pretty much the same thing over there... so, I stick by my (as you say) scolding... but I dont' think it was, but we can disagree on this...

Look at the definition... it is 'income' from all sources. Now, 'income' does not include the increase in the value of something... your statement was it was only deposit accounts... so, if I made $100 of income and invested $10 in some exotic investment, I would have $10 saved for a 10% saving rate... Now, for the next year, that exotic investment made me $1,000 and I still made my $100... and invested that $10 then again, 10% savings even though my total assets for the year increase by $1,010...

So, the saving rate is how much of my disposable income I save.. the $1,000 is not disposable income... it is in a different stat...

 

[mathjak107]

savings rate dosnt include capital gains increases in value. my 401k and ira's more than doubled over the last few years but dont count in this savings rate so yes the savings rate number is somewhat skewed to the low side

 

[Texas Proud]

savings rate dosnt include capital gains increases in value. my 401k and ira's more than doubled over the last few years but dont count in this savings rate so yes the savings rate number is somewhat skewed to the low side

That is the whole point of 'savings RATE'.... you did not 'save' anything with your doubling of assets.... yes, your net worth increased a lot, but you did not 'save' anything if you did not put any new money in there (except for the dividends and interest of course)...

 

[Zathras]

But, imagine this case: Joe has quit his job, he has no earned income. He has $100K in a savings account earning 5% interest. He made no deposits to the bank this year, and withdrew $4000. Most of us would consider Joe to be using up his assets, but according to the way savings rate is calculated, he is a net saver--in fact, at a savings rate of 1% per year, he's well ahead of the US average.

Which would be accurate. The savings rate isn't supposed to be an indication of how much they make, it is how much they save compared to how much they make.

 

[BunsGettingFirm]

Savings rate is current income - current consumption, but that still means most people are depending on increases in their assets to fuel their spending.

 

[JustCurious]

IMHO, "savings rate" should be defined as current earned income minus expenses. I don't consider interest or dividend income that I earned this year on on savings that I put aside in prior years as part of my "savings rate." It is true that my "savings" balance may grow on it's own accord, but if I don't add anything to my savings this year, I would consider my savings rate to be zero.

 

[samclem]

IMHO, "savings rate" should be defined as current earned income minus expenses. I don't consider interest or dividend income that I earned this year on on savings that I put aside in prior years as part of my "savings rate." It is true that my "savings" balance may grow on it's own accord, but if I don't add anything to my savings this year, I would consider my savings rate to be zero.

I concur. This matches the commonly understood meaning of "what I saved this year." And, for the reason you note, the "savings rate" as it is now computed actualy overstates the amount that people are really saving.

I think we my have chased this rabbit around the tree sufficiently.

 

[macnjus]

Somethng I consider a major distortion of this figure is that , as many here have noted, while cap gains are not included in savings, what has not yet been noted is that the the taxes paid on those same gains are indeed counted as consumption.