Originally Posted By mrichmondj <a href="http://biz.yahoo.com/ap/070201/economy.html?.v=15" target="_blank">http://biz.yahoo.com/ap/070201 /economy.html?.v=15</a> I've been following this particular statistic with interest over the past several years. It doesn't seem to bode well for the future of the U.S. economy. Americans continue to spend more than they have earned, and the savings rate has been negative for 21 consecutive months. Some quotes from the article: " The Commerce Department reported Thursday that the savings rate for all of 2006 was a negative 1 percent, meaning that not only did people spend all the money they earned but they also dipped into savings or increased borrowing to finance purchases. The 2006 figure was lower than a negative 0.4 percent in 2005 and was the poorest showing since a negative 1.5 percent savings rate in 1933 during the Depression." "Whatever the reason for the low savings, economists warn that it the phenomenon exists at a particularly bad time with 78 million baby boomers approaching retirement age. Instead of building up savings to use during retirement, baby boomers are continuing to spend all their earnings." Of course, our economy is not in a depression right now, but what concerns me is that any downturn could be particularly nasty when you consider that in the "good times," both consumers and the government are living on borrowed money. Can our government bail out consumers in a time of crises considering how much indebtedness we continue to pile on as part of a normal routine?
Originally Posted By onlyme This is serious stuff. As the article stated, besides the past two years, the only other time that savings were in the negative was during the depression. The reason(s) it was negative during that time are obvious, but what about now? It's simple-we're addicted to spending. With new gadgets coming out on a weekly basis, it's hard to resist. It's scary to consider the possibility/probability that 'instant gratification' may make for some very hard times when retirement comes. And for a lot of baby-boomers, it's coming soon. >>Economists have put forward various reasons to explain the current lack of savings. These range from a feeling on the part of some people that they do not need to save because of the run-up in their investments such as homes and stock portfolios to an effort by many middle-class wage earners to maintain their current lifestyles even though their wage gains have been depressed by the effects of global competition.<< It's foolish to put all of your eggs into these two baskets-your home and stocks. With a wink of an eye, both of these 'solid' investments, can come crashing down.
Originally Posted By RoadTrip Well first of all, investments ARE savings. If you invest carefully and hold a diversified portfolio you have pretty good security and still will recognize an 8%+ annual return. Try getting that with your typical savings account!! We save about 15% of our gross income, and most of that is in mutual funds. Our financial planner puts us into a group of funds where some do well even when others tank and vice-versa. Even during the crash following 9/11 we lost relatively little on an overall basis. In the time since then we have earned back any losses plus $$$. For too long people have figured that they don’t need to save because of their home equity, and that is obviously proving to be a mistake.
Originally Posted By mrichmondj I think it has just gotten too easy to spend money. The convenience of credit cards, online banking, and web-based shopping just makes it too simple to part with your money. The mental calculations that people might have done before making a significant purchase -- or even less significant purchases -- just don't happen anymore because there isn't time to think about the consequences of overspending.
Originally Posted By vbdad55 The question I have is realted to Trippy's response also - when they show the negative savings, do they account at all for 401K type savings ? My guess is no. And again as the Tripster mentioned, if you have a diversified portfolio, with a mix of stocks / bonds / money market investments, they do not tank at the same same, there is an inverse reaction between them. 50 years ago most people had passbook savings accounts period. The stock investment and funds tpye deals were for the well off only ( mostly) so yes the savings rates were higher. Today who puts money into a savings account at 1.3% or whatever crapola the bansk allow ? I do agree that people way overspend right now, when the economic picture for the average American is scary - jobs off shoring, pensions being removed etc - yet what was the biggest selling item this Christmas -- Huge LCD HD TV's --selling as fast as french fry orders - and likely 90% of them going on credit cards. So there is a double edged sword here, but I am also tired of seeing Boomers bashed as if we are the ones not saving. Most of the people I know are fairly well set for retirement. Many of us who have lost our pensions because of greedy *** CEO's still have saved well enough so that we may not be traveling the world daily in retirement, but we'll be just fine.
Originally Posted By DlandDug I also followed this story through the 90s. Whenever I was told that the economy was booming, I would point out that there were two trends that were being completely ignored. Personal savings were at an all time low, and filings for personal bankruptcy were at an all time high. In addition, for the first time ever, lenders were facing bankruptcy filings from firms with "A" credit ratings. I really believe that this is a result of a zeitgeist where the mantra is, "You can have it all... now."
Originally Posted By Jim in Merced CA But from an economic standpoint, spending is what makes the world go 'round. I don't ever hear the President telling us to 'save your pennies' -- it's always 'go out for dinner, go to the mall, take a vacation' -- then again, he's a guy who's never had to worry about money, and probably isn't funding a 401k. They mention the current rate that Americans are saving, which is piss-poor. What SHOULD the average American be saving? I'm thinking of a someone who has to scrimp to make rent, can't afford medical insurance of any kind -- what are we expecting them to save? On the other hand, as Americans we're always doing something wrong. If we're spending, we're spending too much. If we're not spending at Christmas time, we're causing the economy to tank. Sometimes in this country, I feel like I'm still living with my parents. 'You're going out? Well, take a sweater' Yeah right....
Originally Posted By DlandDug >>I don't ever hear the President telling us to 'save your pennies'...<< And that's another reason a lot of conservatives are unhappy with the current President. They expect someone like Bill Clinton to be feckless, but not the conservative Republican in the White House. >>What SHOULD the average American be saving? I'm thinking of a someone who has to scrimp to make rent, can't afford medical insurance of any kind -- what are we expecting them to save?<< There's no expectation that people who are just getting by will be able to save. Yet they are the ones who usually do. It is the people who are on solid financial footing who are dropping the ball. Too much income is being spent on expensive toys, frankly. Credit card debt is also a culprit. That's the source of the disturbing numbers on personal bankruptcy. It all goes to a lack of personal responsibility.
Originally Posted By mrichmondj << And again as the Tripster mentioned, if you have a diversified portfolio, with a mix of stocks / bonds / money market investments, they do not tank at the same same, there is an inverse reaction between them. >> Unless you have 1970s style "stagflation," then everyone loses.
Originally Posted By mrichmondj << Most of the people I know are fairly well set for retirement. >> There are a number of widely circulated studies that show people believe they are well set for retirement when asked that question. However, when they actually provide financial data, it turns out they aren't very well set up at all. There are also a number of studies that consistently show people will overwhelmingly lie to others about their income, savings, and investment performance -- particularly males. There is something about money that makes people inflate the figures so that they don't let their peers believe they are inferior. I've learned to take what people say about their finances with a grain of salt. I've had a number of acquaintances who boasted of their lofty stock market gains or investment savvy only to find the repo man show up on their doorstep to take the keys to the BMW and the foreclosure sign go up on the front door. It's always more exciting to brag about how big your flat screen TV is than to admit you really couldn't afford it in the first place. At some point, though, there is a tipping point where deficit spending will overcome our ability to sustain this economy. When that happens is a matter of question, but it almost certainly will within the next decade or so. That being said, I also believe that the declining savings rate is a natural correlation of our aging society. Older people dip into savings rather than build it up. As our overall population becomes older, it should be expected for the savings trends to go downward. I'm not sure it's healthy for them to be negative, but the downward trend by itself shouldn't be unusual considering the underlying demographic trend.
Originally Posted By Jim in Merced CA <I'm not sure it's healthy for them to be negative, but the downward trend by itself shouldn't be unusual considering the underlying demographic trend.> Whew! Good to know. Can I go buy a new mac now?
Originally Posted By vbdad55 ^^^^^^^^^^ sure, just don't drive there in a BMW, every thread on the economy it gets brought up as one of the items people overspend on...why not MB or heck Caddy ?
Originally Posted By fkurucz >>What SHOULD the average American be saving?<< The rule of thumb is that the rate should be 10% of one's income, preferably into a long term growth investment (like an index fund).
Originally Posted By fkurucz >>Unless you have 1970s style "stagflation," then everyone loses.<< Then you sell your stocks and buy gold (or some other hard assets). I also remember in the early 80's banks were paying about 15% a year on CD's.
Originally Posted By mrichmondj << I also remember in the early 80's banks were paying about 15% a year on CD's. >> I believe inflation, as measured by the government, was running at 10-12% during that time. So, the actual gain in a CD would have been about 3%. Of course, the point of saving is that you get that 3% and the guy who doesn't save anything gets zero -- so still a winning game as long as you set aside the money to begin with. As for those BMWs -- I actually get more of a chuckle about those Lexus-brand Corollas and Camrys that are parked in the McMansion driveways. I find it hard to believe that people pay a premium price for those cars. Sure, they're nice, but why not just buy the Corolla and save the extra money?
Originally Posted By RoadTrip <<There is something about money that makes people inflate the figures so that they don't let their peers believe they are inferior. I've learned to take what people say about their finances with a grain of salt. I've had a number of acquaintances who boasted of their lofty stock market gains or investment savvy only to find the repo man show up on their doorstep to take the keys to the BMW and the foreclosure sign go up on the front door. >> I drive a Dodge. So does my wife. Our newest and largest TV is a 5 year old 32" tube model. We live in a very nice house in a very nice area, but it is a 4-bedroom house that is only 2,000 square feet built in 1957. Nice house, but certainly not even close to a McMansion. We really DO invest 15% of our gross income and the three mutual funds we have the most invested in have returned 17.05%, 16.60% and 11.89% over the past 12 months. Now, do I care whether you believe me or not? Hell no. It's a freaking bulletin board for God's sake. Who cares?
Originally Posted By onlyme Hey, very similar to me. And yes, your a very smart man, whose wise decisions will pay off in the long run. There's so much crap that I want to buy, and could/can afford, but I try to resist. But, it gets very hard at times.
Originally Posted By mrichmondj I've found that the best decision I ever made in terms of saving money was not getting married. A wife and kids would be very unaffordable.
Originally Posted By onlyme I agree with half of that, I'm 45 and we don't have kids. Cripes, that's an expensive venture, for sure. But, my wife, well, I tripled my income when we married.
