2006 personal savings drop to 74-yr. low

[cute fuzzy bunny]

 

[2B]

To a certain extent the data is flawed. I personally have a near zero savings rate by the methods used. I am deducting $20,500 from my annual salary to go into my 401k plus I'm putting about $6,400 into my HSA. At the end of the year, I might move a few thousand to savings late in the year but I actually hope to blow any extra on nice vacations. For a real nice trip, I might dip into savings this year. Gad! I might have a negative savings rate.

The "savings rate" does not include tax deferred savings. It is misleading the way the numbers are thrown around.

 

[laurence]

Samclem said it was included in the savings rate! Somebody post a link, quick!

 

[bssc]

I know what we need.
Another round of tax cuts!

I will raise you a round of tax cuts plus tax credits for any expenses you may incur running your trust fund. It will stimulate the economy, generate jobs and increase the tax base and savings rate

 

[samclem]

Samclem said it was included in the savings rate! Somebody post a link, quick!

Here we go again! Last time it was Masterblaster who insisted that tax-deferred savings weren't included, this time it is 2B.

The savings rate definitely does include tax deferred savings. And, the income component includes employer matches to 401Ks, and even employer funds payed into Social Security (but not the worker's contribution) etc. So, the rate was overall negative even AFTER the employer matches to 401Ks and social security. Not very good.

Here's a link to the government site that shows how the figure is calculated, using actual numbers

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

 

[2B]

Here we go again! Last time it was Masterblaster who insisted that tax-deferred savings weren't included, this time it is 2B.

The savings rate definitely does include tax deferred savings. And, the income component includes employer matches to 401Ks, and even employer funds payed into Social Security (but not the worker's contribution) etc. So, the rate was overall negative even AFTER the employer matches to 401Ks and social security. Not very good.

Here's a link to the government site that shows how the figure is calculated, using actual numbers

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

I read through the post quickly and never saw a specific reference to tax deferred savings. "Pensions" doesn't count. Please cut and paste the reference or give me more specific guidance. I heard on a financial show that said they use IRA income data that does not include tax deferred withdrawls.

 

[peggy]

Here's a link to someone else who claims 401k savings and such weren't included:

http://blogs.dailymail.com/donsurber/2007/02/02/the-myth-of-a-low-savings-rate/

Generally, I agree with whoever said upthread that this is one of those things I can't change, so I'm not going to worry about it.

 

[samclem]

2B,
Look at Table 2 in the link. (Here it is again .http://www.bea.gov/bea/newsrel/pinewsrelease.htm )

The details are there and fairly starightforward.

1) First, the government computes personal income (which includes

- Compensation from:
Wage and salary disbursements.
Supplements to wages and salaries
Employer contributions for employee pension and insurance funds
Employer contributions for government social insurance
- Proprietors' income with inventory valuation and capital consumption adjustments
- Rental income of persons with capital consumption adjustment
- Personal income receipts on assets
- Personal interest income
- Personal dividend income
- Personal current transfer receipts
- Government social benefits to persons
- Other current transfer receipts, from business (net)

2) From this personal income, two things are subrtacted:
- Contributions for government social insurance (i.e Social Security)
- Personal current taxes

3) The result is disposable personal income

4) To obtain the savings rate, the government subtracts personal outlays from personal disposable income. Personal outlays include:
- Personal consumption expenditures (durable goods, non-durable goods, services, personal interest payments, personal current transfer payments)

As you can see, the "savings rate" isn't computed by directly measuring savings (whether tax-deferred or not). It is measured indirectly, and is merely the difference between what people earned and what they spent. It's not a perfect measure, but it does an okay job of describing how much of their income (including interest and dividends, as well as employer matches to 401Ks and SS) people are stashing away. That's a different question than how much individual net worths are increasing/decreasing, etc.

 

[laurence]

Ah, that's actually not a bad idea. Rather than try to add up a bunch of disparate figures they just take income and subtract expenditures. They don't try to play detective and see what you socked away in tax deffered accounts or your mattress.

 

[2B]

1) First, the government computes personal income (which includes

  - Compensation from: 
     Wage and salary disbursements.
     Supplements to wages and salaries
     Employer contributions for employee pension and insurance funds
     Employer contributions for government social insurance
  - Proprietors' income with inventory valuation and capital consumption adjustments
  - Rental income of persons with capital consumption adjustment
  - Personal income receipts on assets
  - Personal interest income
  - Personal dividend income
  - Personal current transfer receipts
  -  Government social benefits to persons
  - Other current transfer receipts, from business (net)

2) From this personal income, two things are subrtacted:
    - Contributions for government social insurance (i.e Social Security)
    - Personal current taxes

3) The result is disposable personal income

4) To obtain the savings rate, the government subtracts personal outlays from personal disposable income. Personal outlays include:
    -  Personal consumption expenditures (durable goods, non-durable goods, services, personal interest payments,  personal current transfer payments)

I did look at your link.  I saw exactly what you cut and pasted.  IMHO you have not made your point that tax deferred savings is included in the "savings rate."

If you talk to the IRS, I "earned" what is on my W-2.  It does not ever show up in my "wages."  I didn't see any reference anywhere that referred to HSA's, 401k's or company contributions to them.  I define "pension plans" as the old standby defined benefit plans.

I'm happy to be proven wrong; but until I see a specific reference to "tax deferred savings plans" or 401k's, I'll standby my original comment that I don't believe my 401k and HSA contributions are not part of "savings" in this survey.

late edit:  I just heard Neil Cavuto on Fox discussing this same savings report and he brought up the lack of including tax deferred savings plans as a major problem with the report.  He quoted some other report that said US workers are saving an average of $700 per year.  That's not much but it exceeds the saving rates of France, Italy, Germany, China and I'm sure many others (not to mention Somolia).

I tried to find the link on his "Common Sense" section on the Fox website but it wasn't there.  Maybe tomorrow.

 

[cute fuzzy bunny]

The 401k money is definitely included...as I mentioned upstream (and its agreed with on the link pointed to), this number is all gross earnings minus a few things compared with gross spending. The 401k isnt called out specifically because its part of the gross earnings.

The lamentations in the press and television regarding not including the 401k's etc has to do with the lack of measuring CAPITAL GAINS in 401k's, other investment accounts, homes, etc...not contributions to those accounts.

Someone who has put 50k over the last 10 years into a 401k thats now worth 150k? This stat only measures the 50k. If that person is spending all their ready cash now, creating a zero or negative cash flow...they've still amassed a considerable savings that is unmeasured by the stat.

This is why I tap-tap-tap in an annoying manner on widely accepted stats. While its highly arguable as to what is and isnt in them and how they measure, as long as you understand how the number is produced you can decide how applicable it is to you.

My net worth is in seven figures, and we're increasing our savings rate - by this measure - year on year. But the measured savings rate is vastly dwarfed by the capital gains we've "earned". By this measure, we're decent little savers, not financially independent high net worth people.

Someone thats soaked their money into paying for a San Francisco house thats appreciated to seven figures and money into their 401k thats appreciated to seven figures might look to be a marginal or negative saver by this measure.

And we have unemployment figures that dont include people who give up looking for work, inflation figures that leave out half the stuff some people spend money on, etc.

Fine...just know whats being measured and how it applies to you.

 

[2B]

The 401k money is definitely included...as I mentioned upstream (and its agreed with on the link pointed to), this number is all gross earnings minus a few things compared with gross spending. The 401k isnt called out specifically because its part of the gross earnings.

I'll still stay officially "unconvinced." On my W-2 my "taxable gross" does not include my 401k. I'm looking for something that specifically defines the earnings and savings to include tax deferred items.

I'm happy to be proven wrong but I haven't seen what I consider "evidence" yet. I've heard several conflicting items that are making me stick to my guns but I agree they could also be wrong.

My personal savings rate is somewhere between 20 and 30%. It depends on my OT pay. Lat year it was 30%. My savings rate is higher than I want it to be. My original intent was to spend any OT pay on traveling and unpaid time off but with my in-laws' situation DW is tied to the land. I get almost every Friday off anyway so my desire to kill or inconvenience helpless members of the animal kingdom has ample opportunity to express itself.


Another late edit: I forgot to comment on the fabulous growth of my eight or nine figure net worth. As John Paul Getty once said, "if you know how much you have you can't really have that much." CFB - do you count numbers to the right of the decimal point in your figures?

 

[cute fuzzy bunny]

Its not measuring your taxable gross from your w2. Its measuring total salary and wage disbursements, which is the total payroll...before the 401k is taken out.

The conflicting items are either not getting it or not reporting it straight. Which never happens, right?

"Also, despite some popular media reports to the contrary, the personal savings rate does include 401(k) contributions, so everything you and your employer put aside in your 401(k) is counted as savings, said Kurt Kunz, an economist with the Commerce Department's Bureau of Economic Analysis, which publishes the personal savings rate."

From:
http://www.fa-mag.com/news.php?id_content=4&idNews=776

 

[2B]

"Also, despite some popular media reports to the contrary, the personal savings rate does include 401(k) contributions, so everything you and your employer put aside in your 401(k) is counted as savings, said Kurt Kunz, an economist with the Commerce Department's Bureau of Economic Analysis, which publishes the personal savings rate."

From:
http://www.fa-mag.com/news.php?id_content=4&idNews=776

I bow before your towering intellect.

Thanks, I'm glad to know the truth. I'm waiting/hoping the Neil Cavuto blurb shows up on the Fox website because he referenced another conflicting report that said the US savings rate was much higher.

 

[cute fuzzy bunny]

Ah, blow me.

I think there are some other savings reports that work differently from this "national savings number", but I dont really track these things too closely. The bottom line is that people with investments and homes in the "right" places have some cash. But the average joe living in a square state that isnt slapping money into a 401k is probably screwed.

 

[2B]

Not intending to hijack the thread (famous last words) -- our neighbor just listed their house for a $/sq.ft. that would give us 25% appeciation in 1 year. No way I say but another person down the street has theirs listed at about the same silly number. I've told DW if they get those prices it's time for us to sell and move further west. Texas doesn't have price runups like that.

Even though I put money into my 401k, I'll discuss the other aspect with DW later. I couldn't resist the easy shot.

 

[wabmester]

another conflicting report that said the US savings rate was much higher.

I'm too lazy it to look it up, but without the forced savings of pension plans, the number is much worse.

 

[samclem]

Whew! That brush fire was put out again. I wager 8 weeks or less until another flare-up.

 

[wabmester]

I'm not too concerned about people spending like mad. Money makes the world go around. But it is a little concerning to think about what happens when they stop.

(MEW = mortgage equity withdrawal)

 

[Sam]

That graph is scary! Where did you get it from?

 

[wabmester]

That graph is scary! Where did you get it from?

Google.

year-old link

 

[laurence]

So basically, GDP was growing for real up until the dot com bubble burst, and since then we've been living on borrowed time? Scary.

 

[Gone4Good]

I smell a rat in the whole mess.

In the late 90's the low savings rate was blamed on the "wealth effect" caused by the stock market bubble. After the bubble burst the negative savings rate was then attributed to the "wealth effect" of the real estate bubble. Now that real estate is deflating, equity cash outs are way down, sub-prime borrower defaults are at all-time records, you'd expect the "negative wealth effect" to hammer GDP. But lo-and-behold 4th quarter GDP clocked in at a healthy 3.5% last quarter (anyone know what the MEW was in the 4th quarter?)

Something doesn't add up.

 

[wabmester]

I believe that household net worth is still increasing even without real estate, so spending is probably fueled by both RE and stock gains.

Calculated Risk has an update on MEW here:

2007 link

 

[Gone4Good]

I believe that household net worth is still increasing even without real estate.

Yes, but isn't that strange. Home values are declining after copious amounts of equity was extracted, the S&P 500 has not yet reclaimed its 2000 peak, tech stocks are still significantly below their peak, savings is negative, and yet household wealth is at all time highs.

I question the data.