[RoseC@SEC.GOV: The Dollar]

[Lan Barnes]

On Thu, Dec 09, 2004 at 02:51:47AM -0800, Alan wrote:
> Gabriel Sechan wrote:
> >
> >Although 40% is impressive-  I thought I was doing well at about 33%.  
> >Of course "household income" means there might be 2 wage earners- that 
> >can make up the difference in rent.
> >
> >Gabe
> >
> 
> 33% is surely more than just about everyone. I saw a stat on CNN 
> recently. Said the average American saves only 0.02% yearly.
> That's about 80 bucks for a person making $40k.
> 

The savings rate fluctuates from generation to generation and country to
country. There are several factors[0], but the two biggies are:

1. return on savings (interest rate adjusted for inflation)

2. discretionary income

People can't save when their income all goes to basic food, shelter,
clothing, and transportation. And people won't save if it gets pissed
away by poor returns that don't cover inflation.

Even when long-term savings are unprofitable, there will still be a
savings rate because of people gathering such boluses of money as down
payments (houses, cars). Thus a really low savings rate like 0.02% is an
indication that there is very little discretionary income in the
society. Other indicators of this "middle class squeeze" phenomenon are
high bankruptcy rates and high mortgage default rates. Both those rates
are at record highs in the US right now and growing.

Draw your own conclusions.

I'm glad that individuals on this list are able to save significant
percentages of their income. From the point of view of long term return,
they might be better advised to put the money into property, and quick
before the mortgage rates soar. But as nice as it is that some people
have that situation, the numbers say that it's an aberration. Most people
are really strapped.

[0] I'm always amazed when politicians and even economists make moral
pronouncements about the low savings rate. For a long time they liked to
blame what they saw as the me-me-me immediate gratification ethos of the
baby boomers. We're two generations down the road from the BBs, and it's
even worse for the kids coming up now.

People like to point out that the 19th Century had historically high
savings rates; but those were steadily deflationary times (before the
Fed in 1913), with a steady return on savings in the 1% - 2% range, and
with no income tax. A person who steadily put even a little away each
paycheck could expect to get out a lot more money that went further at a
later date. Do the numbers today and you'll see that savings accounts
evaporate.

-- 
Lan Barnes                    lan at falleagle.net
Linux Guy, SCM Specialist     858-354-0616