Personal Savings Rate

The United States’ personal savings rate is -1.7%. The numbers are a bit skewed because people at the bottom of the income scale are continuing to save the way they always have; however, the people at the top of the income scale are disproportionately affecting the statistic by spending significantly more than they earn. Even so, there is consensus that we are saving less today than ten or fifteen years ago. But there are some things that likely account for this lack of savings which is not being discussed or acknowledged.

First our entire retirement system has changed. Fifteen years ago, employees were not required to put much money aside to cover their retirement because they were enrolled in defined benefits programs. Now, employees who are not making much more money in inflation adjusted dollars are required to take money out of their budget and put it toward a 401(k). The average savings in 401(k) is about 8%, and if you take the first 8% of a person’s income and put it in unliquidated accounts while other bills like rent and food continue going up in cost, there is less money available to the person to save. It should also be noted that 401(k) savings is not accounted for in the personal savings rate, so this savings is not included in the -1.7%.

The government has created a generation of debt in Generation X and those coming up through the ranks afterward. It used to be that college students were able to rely upon grants and other subsidized money to pay for college tuition. Today, college, the road to the middle-class, has increased substantially in cost, which is in part due to the government’s refusal to provide money to institutions of higher education, and the government has taken away the last bastion of assistance to middle-class students – subsidized student loans. As costs have gone up and the obligation to pay for school has shifted from subsidized funds to personal loans and the personal loans have become more burdensome on the students, when a student graduates, they are saddled with more debt than other generation before it. The average student is graduating with more than $20,000 in debt, although this statistic is likely very low compared to the real debt level students have upon graduation. Being saddled with debt and likely low incomes immediately after college these students have no way to save money for their rainy day fund.

The Baby Boomers are getting squeezed too. Their parents are getting older and there are no safety nets for the aging. Medicare and Medicaid are not sufficient to provide medical coverage for those who need long-term care, so their children are looked to for the funds to cover the costs. At the same time, the Baby Boomers have children in college who are looking for assistance to cover the ever increasing tuition costs. So any disposable income they have is likely going to others to assist them in covering their essential needs. As these resources decrease, the ability to save money goes down.

If having people save money is important to the nation, then the nation needs to reevaluate how people should come up with the cash for the greatest drains on people’s finances. The retirement burden needs to be shifted away from the employee, college tuition needs to be reduced and government assistance needs to be reinstated, and elder care needs to be established. As the GOP starves the beast, they are destroying the minimal safety net that used to exist and the end result is that the economy is precariously teetering because while the people could afford the taxes that established the safety nets and could afford increased taxes to strengthen these safety nets they cannot afford the significantly greater expense of building from scratch the personal safety nets especially while wages stagnate. Without any savings to fall back upon because all their money is going into the building of the safety nets, when (not if) the economy collapses, due to irresponsible economic policies, all of the middle-class will get lost into poverty and there will be no one to assist in the rebuilding of the national economy. In other words, it is in the nations economic interest to rebuild the safety nets and remove these burdens from the middle-class.