A very interesting article. Are most Americans spendthrifts brainwashed by Madison Avenue and trying to keep up with the Jones. OR Are the majority of people just barely making ends meet and therefore have nothing left to save. plk
Spendthrift nation
By Alexandra Marks and Ron Scherer | Staff writers of The Christian Science Monitor
from the August 03, 2005 edition - http://www.csmonitor.com/2005/0803/p01s02-usec.html
NEW YORK - Americans have stopped saving for a rainy day.
Instead, they are living paycheck to paycheck, depending on credit cards to get them through emergencies, and hoping that the rising value of their homes will give them a retirement nest egg.
This personal economic chasm is showing up in the national savings rate, which has been declining for years.
Tuesday, the Commerce Department reported that the personal savings rate fell to zero in June, the lowest since a one-month buying binge in the aftermath of the 9/11 attacks.
The United States is on track to record a savings rate for the year below 1 percent, which would be the lowest since the depths of the Great Depression, when the rate turned negative.
The nation's paucity of savings is raising alarms from the Federal Reserve to consumer watchdogs who worry that the nation is counting on foreign savings to maintain a spendthrift lifestyle.
Some groups are cranking up advertising campaigns to try to remind Americans that they don't need to participate in every sale.
And there are now high-level suggestions that the tax system needs to be changed to encourage savings instead of spending.
"In two generations it seems that we've lost the culture and habit of savings," says Nancy Register, of the Consumer Federation of America.
"There's so much marketing pressure to spend and buy and have instant gratification.
And if you can't buy it now, put it on your credit card."
Last week, Federal Reserve Chairman Alan Greenspan warned that the low savings rate is impairing the nation's long-term economic prospects.
An improved savings rate would provide investment money for businesses, which would create jobs, he said.
Though Americans' savings are falling, their net worth is rising in large part because of soaring home prices and some improvement in the stock market, economists say.
People spend 6 percent of all housing market gains and 2 percent of their stock market gains, says Anthony Chan of JPMorgan Asset Management in Columbus, Ohio.
"When you have massive capital gains, you get people spending more, pushing the savings rate down," he says.
In fact, other analysts contend the situation may not be as dire as the official statistics indicate.
That's because when the Commerce Department calculates the savings rate, it doesn't include things like capital gains and investments in pension plans.
Currently, there are about $12 trillion dollars in various structured retirement accounts that are not included in the savings rate, says Dallas Salisbury, president and chief executive officer of the Employee Benefit Research Institute in Washington.
"Let's assume that you bought a home and you held it for some number of years and you had a large capital gain.
That capital gain would not be calculated as savings and the taxes would be counted as an expense," says Mr. Salisbury.
"So, even though you may look at it as though you have more savings than before, the Commerce Department does not."
For those 25 to 34 years old, the percentage without a rainy day fund jumped to 55 percent.
One of those is Chris Campbell, a New York actress, who says she's got, "nothing, zip, zero" in the bank.
For example, last month, the automobile companies offered buyers the option to purchase a new car at an "employee discount rate."
Summarized by Copernic Summarizer
This is all very true. However, I disagree with some of their conclusions.
ReplyDeleteSavings are down because putting money into a bank makes no sense at all, if you have any money, you are going to put it some place where it will earn a decent return - and today that is real estate.
On the other hand, the stock market "crash" just a few years ago has left many people leery of investing in stocks, so using the governments analysis, you wind up with no savings.
Then there is the matter of how the government spends. If you ask 100 people if they think they will have anything from social security when they retire, you will find 99 of them that say "no". If you ask them what is going to happen to what savings they may have, they will tell you that they think that inflation down the road will render their savings worthless.
With this kind of thinking, people will spend all they can (money is worth less in the future) and only invest in what they feel is relatively inflation proof.
This is reality.