# Americans saving less money. Discuss? **URL:** \ **Category:** Great Debates\ **Created:** [January 31, 2006, 3:39am UTC](https://boards.straightdope.com/t/americans-saving-less-money-discuss/342307 "2006-01-31T03:39:10Z")\ **Posts on this page:** 20\ **Page:** 2
**Author:** ![iamthewalrus\_3](https://avatars.discourse-cdn.com/v4/letter/i/258eb7/32.png) [@iamthewalrus\_3](https://boards.straightdope.com/u/iamthewalrus_3)\ **Post date:** [January 31, 2006, 5:34pm UTC](https://boards.straightdope.com/t/americans-saving-less-money-discuss/342307/21 "2006-01-31T17:34:24Z")
> [@Walter Windchill](#): > > It’s not that easy to just scrape together six months pay. Six months _expenses_, not six months pay. If they’re the same, well, that’s part of the problem. ---
**Author:** ![Kalhoun](https://avatars.discourse-cdn.com/v4/letter/k/3bc359/32.png) [@Kalhoun](https://boards.straightdope.com/u/Kalhoun)\ **Post date:** [January 31, 2006, 5:52pm UTC](https://boards.straightdope.com/t/americans-saving-less-money-discuss/342307/22 "2006-01-31T17:52:32Z")
> [@Mr. Slant](#): > > Forgot to add my two cents on the quoted section. > Six months of expenses is the usual reccomendation. That is six months pay for a lot of people. > If you’re much above the poverty line, six months of your pay is enough money to open up a brokerage or money market account. You can put two month’s pay in an interest-paying checking account and the other four months in a mutual fund that invests solely in high-quality government, bank and large company bonds. If you pick carefully you can get around 4% yield and no material risk of losing money. In fact, Capital One has a 4% APR _savings account_ product right now. > You can beat 4% long-term in the equities market, but if you had lost your job when the dot-com bubble burst, your six months of expenses carriage might have turned into a three and a half months of expenses pumpkin in the same week you lost your job. > Now if you have enough invested that there’s NO WAY any stock collapse in history could wipe you out down to below six month’s savings, sure, go ahead, keep all of it in equities. Except for maybe $3000 or so, in order to avoid transaction fees for 99% of those little emergencies that get thrown your way. This is exactly what we’re doing. We have a 4% savings account for immediate needs (2-3 months) and the rest of our rainy day money in CDs. I just hate the thought of working my ass off all these years only to lose everything because I didn’t plan for a worst case scenario. ---
**Author:** ![Kalhoun](https://avatars.discourse-cdn.com/v4/letter/k/3bc359/32.png) [@Kalhoun](https://boards.straightdope.com/u/Kalhoun)\ **Post date:** [January 31, 2006, 6:04pm UTC](https://boards.straightdope.com/t/americans-saving-less-money-discuss/342307/23 "2006-01-31T18:04:57Z")
> [@Walter Windchill](#): > > It’s not that easy to just scrape together six months pay. Even if you manage to put 10% of your paycheck aside, that’s going to take 5 years. That’s presuming the water heater doesn’t blow, or anything else that eats into those savings before you get there. And something almost always does come up. We came up with our savings money quite by accident. Back in the day when we weren’t great savers, we were remodeling the house. We took out a small home equity loan ($10K) and stuck it in the bank while we found a contractor and got all the stuff picked out and scheduled. In the meantime, we had enough money to make the loan payment each month (which was at a great rate, and the interest is a write-off). Like morons, we sat on that money at a really crappy interest rate for a long time (still kicking ourselves over that), but we got used to having the cushion. So we wised up and put it into CDs and moved part of it to a better savings account. I know this doesn’t work for everyone, but it turned us into great savers. It was the best thing we ever did to jump-start our financial security, even if we didn’t do it right in the beginning. ---
**Author:** ![Walter\_Windchill](https://avatars.discourse-cdn.com/v4/letter/w/eb8c5e/32.png) [@Walter\_Windchill](https://boards.straightdope.com/u/Walter_Windchill)\ **Post date:** [January 31, 2006, 6:38pm UTC](https://boards.straightdope.com/t/americans-saving-less-money-discuss/342307/24 "2006-01-31T18:38:23Z")
> [@iamthewalrus(:3=](#): > > Six months _expenses_, not six months pay. If they’re the same, well, that’s part of the problem. Good point, Walrus. I amend my earlier statement. For some people, even stowing 6 month’s expenses is pretty hard, and it’s not necessarily because they’re living wildly beyond their means. ---
**Author:** ![Dangerosa](https://avatars.discourse-cdn.com/v4/letter/d/22d042/32.png) [@Dangerosa](https://boards.straightdope.com/u/Dangerosa)\ **Post date:** [January 31, 2006, 6:57pm UTC](https://boards.straightdope.com/t/americans-saving-less-money-discuss/342307/25 "2006-01-31T18:57:33Z")
> [@Crotalus](#): > > The savings rate being discussed does not include pretax retirement savings like 401Ks. Tha’s from a Yahoo [story](http://news.yahoo.com/s/ap/20060131/ap_on_bi_ge/low_savings_5). This information doesn’t change the fact that the rate has declined tremendously, but this decline is probably somewhat offset by the tremendous growth in retirement savings. Once again, are you sure? I learned that the government figures Disposable Income by taking Income - Taxes = Disposable Income. They don’t do it by figuring Taxes \* (1+Tax Rate) = Income, Income - Taxes = Disposable Income. But I’m not an economist, so I’m not sure. In fact, when I was trying to figure this out, I did find a cite that implied that pension deposits for a defined contribution plan was counted as income in the period in which the deposit was made and that part of the reason that the savings rate has gone down is that defined pensions are much rarer (so few deposits) but the ones that exist or were funded are now in payout mode. Unfortunately, I closed the window and can’t find the cite again. ---
**Author:** ![Crotalus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/crotalus/32/41_2.png) [@Crotalus](https://boards.straightdope.com/u/Crotalus)\ **Post date:** [January 31, 2006, 8:28pm UTC](https://boards.straightdope.com/t/americans-saving-less-money-discuss/342307/26 "2006-01-31T20:28:38Z")
> [@Dangerosa](#): > > Once again, are you sure? I learned that the government figures Disposable Income by taking Income - Taxes = Disposable Income. They don’t do it by figuring Taxes \* (1+Tax Rate) = Income, Income - Taxes = Disposable Income. But I’m not an economist, so I’m not sure. In fact, when I was trying to figure this out, I did find a cite that implied that pension deposits for a defined contribution plan was counted as income in the period in which the deposit was made and that part of the reason that the savings rate has gone down is that defined pensions are much rarer (so few deposits) but the ones that exist or were funded are now in payout mode. Unfortunately, I closed the window and can’t find the cite again. Nope, after further research, I’m not sure at all, but I think you are correct. I found [this](http://www.frbsf.org/publications/economics/letter/2002/el2002-09.html#subhead1) at the San Francisco Fed’s site. It says > [@](#): > > It is constructed by forming the ratio of Personal Saving to Disposable Personal Income (DPI), where DPI is defined as Personal Income (including wage and salary income, net proprietors’ income, transfer payments less social insurance, income from interest and dividends, and net rental income) less tax and nontax payments to governments. Personal Saving is found by subtracting from DPI total Personal Outlays, 97% of which consists of Personal Consumption Expenditures (including consumer durables), with the remainder composed of Interest Paid by Persons (individuals, nonprofits, and trust funds) and Net Personal Transfer Payments to the Rest of the World. That seems to say that Personal Income is Gross Income, which would include 401-K contributions. ---
**Author:** ![Crotalus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/crotalus/32/41_2.png) [@Crotalus](https://boards.straightdope.com/u/Crotalus)\ **Post date:** [January 31, 2006, 8:35pm UTC](https://boards.straightdope.com/t/americans-saving-less-money-discuss/342307/27 "2006-01-31T20:35:19Z")
> [@Dangerosa](#): > > Once again, are you sure? I learned that the government figures Disposable Income by taking Income - Taxes = Disposable Income. They don’t do it by figuring Taxes \* (1+Tax Rate) = Income, Income - Taxes = Disposable Income. But I’m not an economist, so I’m not sure. In fact, when I was trying to figure this out, I did find a cite that implied that pension deposits for a defined contribution plan was counted as income in the period in which the deposit was made and that part of the reason that the savings rate has gone down is that defined pensions are much rarer (so few deposits) but the ones that exist or were funded are now in payout mode. Unfortunately, I closed the window and can’t find the cite again. Nope, after further research, I’m not sure at all, but I think you are correct. I found [this](http://www.frbsf.org/publications/economics/letter/2002/el2002-09.html#subhead1) at the San Francisco Fed’s site. It says > [@](#): > > It is constructed by forming the ratio of Personal Saving to Disposable Personal Income (DPI), where DPI is defined as Personal Income (including wage and salary income, net proprietors’ income, transfer payments less social insurance, income from interest and dividends, and net rental income) less tax and nontax payments to governments. Personal Saving is found by subtracting from DPI total Personal Outlays, 97% of which consists of Personal Consumption Expenditures (including consumer durables), with the remainder composed of Interest Paid by Persons (individuals, nonprofits, and trust funds) and Net Personal Transfer Payments to the Rest of the World. That seems to say that Personal Income is Gross Income, which would include 401-K contributions. ---
**Author:** ![Freddy\_the\_Pig](https://avatars.discourse-cdn.com/v4/letter/f/a587f6/32.png) [@Freddy\_the\_Pig](https://boards.straightdope.com/u/Freddy_the_Pig)\ **Post date:** [January 31, 2006, 8:38pm UTC](https://boards.straightdope.com/t/americans-saving-less-money-discuss/342307/28 "2006-01-31T20:38:45Z")
You are correct, **dangerosa**. Here are the figures [straight from the BEA’s mouth](http://www.bea.gov/bea/newsrelarchive/2006/pi1205.xls). Note that “employer contributions for employee pension and insurance funds” are considered part of personal income. Employer contributions to pensions and employee contributions to IRA’s and 401(k)'s all contribute to the savings rate, because they are income and they aren’t taxes or purchase of goods and services. About the only things that aren’t included are Social Security and capital gains. Social Security has been around for a long time, so there’s nothing new there. There _is_ something new about the way in which people accumulate wealth through capital gains, mostly via stocks in the 1990’s and real estate in the 2000’s. And this does undoubtedly play a part in the negative savings rate. Other factors are that we’re a bunch of bleary-eyed optimists who assume that things will always go well (to some extent, this is a self-fulfilling prophecy because we goose our own economy) and that interest rates are low because foreigners love to loan us money. Personally, I save out the wazoo, but I’m kind of weird. ---
**Author:** ![clairobscur](https://avatars.discourse-cdn.com/v4/letter/c/839c29/32.png) [@clairobscur](https://boards.straightdope.com/u/clairobscur)\ **Post date:** [January 31, 2006, 9:34pm UTC](https://boards.straightdope.com/t/americans-saving-less-money-discuss/342307/29 "2006-01-31T21:34:27Z")
> [@ParentalAdvisory](#): > > [http://www.cia.gov/cia/publications/factbook/rankorder/2001rank.html](http://www.cia.gov/cia/publications/factbook/rankorder/2001rank.html) > > If this site is credible, we’re still in the game for 20% of the worlds GNP. Someday they may own us, but soon? China and India will grow, but I don’t see them owning us anytime soon. It’s unrelated. The USA could produce 70% of the world’s GNP and still be “owned”, in the same way you can be very productive and make tons of money and still be “owned” because you aren’t the owner of the business you’re working in, you spent so much that your house is mortgaged to the roof, you have borrowed the money to buy your car and your stuff, etc… Similarily if foreigners “owned” the USA, the USA would still produce a lot of stuff, but the stockholders of the companies producing it would be Indians, the residential buildings would be built and rented to the residents by Chinese companies, etc… You can be wealthy _and_ owned. The problem is that the profits go elsewhere and that you’re not in control anymore. Actually, the worst case scenario would be that foreigners _wouldn’t_ want to “own” the USA (because they think it’s not safe anymore to invest there) and would rather want their money back. _That_ would be very bad news. ---
**Author:** ![Dangerosa](https://avatars.discourse-cdn.com/v4/letter/d/22d042/32.png) [@Dangerosa](https://boards.straightdope.com/u/Dangerosa)\ **Post date:** [January 31, 2006, 10:02pm UTC](https://boards.straightdope.com/t/americans-saving-less-money-discuss/342307/30 "2006-01-31T22:02:43Z")
Thanks, Freddy. Facinating spreadsheet. And the fact that pension contributions - including 401ks - are included in our negative savings rate makes this scary situation more horrifying. ---
**Author:** ![Kimstu](https://avatars.discourse-cdn.com/v4/letter/k/ecd19e/32.png) [@Kimstu](https://boards.straightdope.com/u/Kimstu)\ **Post date:** [February 1, 2006, 6:23pm UTC](https://boards.straightdope.com/t/americans-saving-less-money-discuss/342307/31 "2006-02-01T18:23:06Z")
> [@duffer](#): > > It has nothing to do with anyone’s economic policy nor foreign policy. It has to do with “personal economics”. What is happening is people are buying themselves into debt. If you make $40k a year and owe $41k, you have a negative savings of $1k. > > I don’t see how this is the government’s fault, but it seems some do. > > Please enlighten me, and thanks for reading. I think that whether or not any of it is the “government’s fault” has to depend on **why** the savings rate is tanking. If it’s unrelated to other economic issues—that is, if people have just spontaneously decided to shovel themselves into debt for the sake of owning lots of consumer goodies that they can’t afford—then I’m not sure what the government can do about it other than scold them for being so thriftless. On the other hand, if savings are going down simply because it’s harder for most people to make ends meet—if they’re spending more time unemployed, or if their real wages are shrinking, or housing and transportation are getting more expensive, or health care and education costs are going up—then that suggests that this is a symptom of unsuccessful economic policy on the part of the government. > [@Sam Stone](#): > > I generally believe that macro economic trends are ‘rational’, in that people are making logical choices given the economic environment they find themselves in. There are exceptions, but it’s usually close to the truth. Is this “rationality” susceptible to PR pressure, though? That is, can people in the aggregate be persuaded to make unwise financial choices in response to consumer-directed advertising? If so, that would certainly be a profitable strategy for marketers to pursue. After all, in the short term, the electronics or appliance company doesn’t care whether you’ll have any money in retirement; they care whether you can be induced to spend money on their product right now. And if so, and if that plays a large role in the decline of savings, then does that mean that our heavily consumerist society is bad for us, in terms of our long-term economic health? Can we combine an economy focused primarily on marketing-driven consumption with financial stability for the average individual? ---
**Author:** ![Lissa](https://avatars.discourse-cdn.com/v4/letter/l/85f322/32.png) [@Lissa](https://boards.straightdope.com/u/Lissa)\ **Post date:** [February 1, 2006, 7:02pm UTC](https://boards.straightdope.com/t/americans-saving-less-money-discuss/342307/32 "2006-02-01T19:02:43Z")
> [@Kalhoun](#): > > I know this doesn’t work for everyone, but it turned us into great savers. It was the best thing we ever did to jump-start our financial security, even if we didn’t do it right in the beginning. What we do is have a portion of Hubby’s salary taken right out of his check every month and put into investments through his workplace. All of his raises automatically go into the savings (deferred comp.) We never see that money, in other words, and the money is not accessible, so there’s no impulse buying or using the savings to pay off bills. (We can only get it if he leaves his job, or in an emergency.) In seven years, we have saved more than I ever would have dreamed possible. Since we’re young, our investment strategy is aggressive. One quarter of it goes into guaranteed return, one quarter into moderate risk, and half into high risk. (Even during the market slow-down we always turned a profit, even in the high risk funds.) When we get within ten years of retirement, we’ll sell all of the investment with risks and put it all into guaranteed return. We used to buy savings bonds, which is a great way to save. You can’t cash them for six months, and the hassle of turning in large amounts of them is enough to stem any ideas of impulse buying. ---
**Author:** ![light\_strand](https://avatars.discourse-cdn.com/v4/letter/l/a6a055/32.png) [@light\_strand](https://boards.straightdope.com/u/light_strand)\ **Post date:** [February 1, 2006, 7:17pm UTC](https://boards.straightdope.com/t/americans-saving-less-money-discuss/342307/33 "2006-02-01T19:17:17Z")
**China Guy** , you see the real problem is that Americans are funding everyone’s economy. Check [this](http://money.cnn.com/2003/10/02/markets/consumerbubble/) out > [@](#): > > Other countries share in the deep commitment to keep U.S. consumers laying out their cash. Big exporters – Japan and China in particular – have strived to keep their currencies low against the dollar, allowing Americans, in effect, to buy more of their stuff. U.S. consumer spending accounts for around 20 percent of world gross domestic product. all of those savers in the east are counting on all of us spenders to prop up the world economy. Why do American’s not save? Who knows. It simply isn’t part of our culture. I think most people are hoping for an imaginary windfall when their parents/grandparents/relative drops dead. Unfortunately, this only works if: your parents had anything, they didn’t spend it all, and they die when you can still use it. This just exacerbates the problem, as rich people are keeping their kids rich, poor people stay poor, and the middle class eats up their savings in their old age. Since very few companies are still offering pensions, and most people live paycheck to paycheck, this is going to be a very big issue. I don’t think it’s going to be an issue with the predicted baby-boomers, I think it’s going to come to a head with the gen-x ers who are lucky if they can find a stable job yet less one that offers retirement. You can’t save when you can barely pay the rent. Moreover, since credit cards are practically given away now, why live within your means? I know plenty of folks who have really nice cars and homes, but can barely make the minimum payments, yet less put something away. ---
**Author:** ![China\_Guy](https://avatars.discourse-cdn.com/v4/letter/c/779978/32.png) [@China\_Guy](https://boards.straightdope.com/u/China_Guy)\ **Post date:** [February 2, 2006, 11:50am UTC](https://boards.straightdope.com/t/americans-saving-less-money-discuss/342307/34 "2006-02-02T11:50:18Z")
> [@light strand](#): > > **China Guy** , you see the real problem is that Americans are funding everyone’s economy. Check [this](http://money.cnn.com/2003/10/02/markets/consumerbubble/) out all of those savers in the east are counting on all of us spenders to prop up the world economy. We’re saying the same thing. Americans want to buy everything now instead of saving. The rest of the world are happy to help the junkie and keep selling them cheap stuff. Admitedly China is not a convertible currency, but it’s not a question that leaders in America say the dollar is too strong and the yuan too weak, it’s market forces that are saying that. Global investors are going to want more interest on their funding of the American debt, and the US interest rates are going to go up. ---
**Author:** ![Kalhoun](https://avatars.discourse-cdn.com/v4/letter/k/3bc359/32.png) [@Kalhoun](https://boards.straightdope.com/u/Kalhoun)\ **Post date:** [February 2, 2006, 11:54am UTC](https://boards.straightdope.com/t/americans-saving-less-money-discuss/342307/35 "2006-02-02T11:54:49Z")
> [@Lissa](#): > > We used to buy savings bonds, which is a great way to save. You can’t cash them for six months, and the hassle of turning in large amounts of them is enough to stem any ideas of impulse buying. We do something similar with our CDs. We have a bunch of short-term CDs that we can cash in if we absolutely need to. We can’t just say, “ooooh! I want a pretty sparkly thing!”. We have to wait for them to mature, at which time we’ll probably come back to our senses and do standard savings to achieve that goal. But if we need to buy a new car, we’re only 3 weeks away from access to the money. ---
**Author:** ![Kimstu](https://avatars.discourse-cdn.com/v4/letter/k/ecd19e/32.png) [@Kimstu](https://boards.straightdope.com/u/Kimstu)\ **Post date:** [February 2, 2006, 5:30pm UTC](https://boards.straightdope.com/t/americans-saving-less-money-discuss/342307/36 "2006-02-02T17:30:48Z")
> [@light strand](#): > > Why do American’s not save? Who knows. It simply isn’t part of our culture. But as noted in the OP, it clearly **was** part of our culture as recently as [twenty-odd years ago](http://www.breitbart.com/news/2006/01/30/D8FF6D700.html): > [@](#): > > The savings rate stood at 10.8 percent of after-tax incomes in 1984 and has been declining steadily since that time. It was down to 1.8 percent in 2004 before turning negative last year. […] > > “Americans have been content to spend a lot more than is good for them or for the economy,” said Lyle Gramley, senior economic adviser at Schwab Washington Research Group. So, what happened relatively recently to change “our culture’s” attitudes towards saving? I don’t understand why this phenomenon is being so widely shrugged off as an inexplicable mystery. There must be reasons for it. **Sam Stone** hypothesizes that most major trends in economic behavior are rational: that is, people on average are making intelligent choices, given their circumstances. Okay, so we ought to be able to explain the trend of vanishing savings rationally. It can’t be explained as a shift to newer savings instruments like 401(k)s, because as noted by **Dangerosa** and **Freddy the Pig** , the current statistics **include** savings in things like 401(k)s, and the overall savings rate is **still** negative. **Sam** ’s suggestion that it’s partly due to better retirement pensions isn’t very convincing because, as **MilTan** pointed out, pension coverage for most workers is actually getting worse, not better. **Sam** ’s other suggested factor of a “wealth effect” from real estate, where people feel less need to save up liquid assets because their homes have become much more valuable, sounds more plausible (and indeed, it’s one of the reasons generally suggested by articles like the one linked above). However, is this in fact a rational financial strategy? For one thing, if it were, I would expect to see renters being much more assiduous about saving than homeowners, because the renters don’t have that nice fat increase in asset value to cushion them financially. But I haven’t seen any evidence that this is the case. Furthermore, I wonder about the “rationality” of the “wealth effect” even for homeowners. Presumably, what makes it “rational” for them not to bother about saving is the expectation that if they do hit a serious financial crunch, they’ll just sell their expensive home and have lots of money. Presto, financial crunch gone. But is this in fact a rational expectation? For one thing, the former homeowners will still have to have somewhere to live, and housing prices have gone up a **lot** recently (which is what produced that “wealth effect” for them in the first place). For another, if the cause of their financial crunch hits a lot of other people at the same time (such as a recession or a wave of retirements), then a lot of other people are also going to be trying to ease the crunch by selling homes. And that will bring housing prices down and reduce the benefit of the “wealth effect”. So I think we need better explanations here. Is the current trend toward negative savings rates rational? If so, why? If not, then what factor(s) are making so many people behave in such an irrational way? If it’s just an issue of “culture” or “personal responsibility”, then why have our cultural or personal attitudes changed so drastically in only the past two decades? ---
**Author:** ![Dangerosa](https://avatars.discourse-cdn.com/v4/letter/d/22d042/32.png) [@Dangerosa](https://boards.straightdope.com/u/Dangerosa)\ **Post date:** [February 2, 2006, 6:03pm UTC](https://boards.straightdope.com/t/americans-saving-less-money-discuss/342307/37 "2006-02-02T18:03:09Z")
Another theory - that I don’t buy - is that our “savings” has moved to capital gains - implied in the appreciation of housing, but also in stock and privately held business. Figures support we have more wealth - but I suspect it skews strongly to the (wait for it, cause it will shock you) wealthy, whereas savings are are better measure for the average person. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [February 3, 2006, 1:09am UTC](https://boards.straightdope.com/t/americans-saving-less-money-discuss/342307/38 "2006-02-03T01:09:39Z")
There can be plenty of environmental factors that can affect the savings rate, and I don’t think the causal relationships are all that easy to figure out. For example, consider the effects of government policy. When did mortgage interest become tax deductible in the U.S.? Making mortgage interest tax deductible makes home ownership more attractive, and makes it more rational to have a bigger mortgage. How about rules for down payments? Here in Alberta, a plan came along, I think in the early 1990’s, to allow people to get government insurance that allowed them to get mortgages with as little as 5% down. That’s going to have a drastic effect on the savings rate, since I’m guessing that one of the big reasons people save money is to afford a 25% down payment on a house. There could be cultural reasons as well. The baby boom generation had parents who lived through the depression, and who were more likely to drill the virtues of saving into their kids heads (and also teach by example). Widespread availability of health insurance could drive down savings rates, because people feel less need to save money to cover their unexpected health care bills. In fact, all of the ‘safety net’ programs, which reduce the consequences of bad luck or bad choice, are going to make it less likely for people to prepare to care for themselves. Before there was unemployment insurance, people would save money to tide them over between jobs. Now they don’t have to. Other factors could include things like the belief that taxes will be higher in the future, so you might as well spend the money now. If you increase estate taxes, people will have less incentive to leave big estates behind. Basically, there are many, many factors which push people into various decisions. Trying to sort out all the variables and find causation is what economists do. If they can’t come to a consensus, then it’s a very difficult problem. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [February 3, 2006, 1:17am UTC](https://boards.straightdope.com/t/americans-saving-less-money-discuss/342307/39 "2006-02-03T01:17:06Z")
I forgot some big factors: 1. Constant, low interest rates. When interest rates are high, you get more reward for saving, and you get punished more for borrowing. When interest rates are volatile, people are more hesitant to borrow money because they fear being hammered with higher interest payments in the future. The last period of high savings (1973-1991 or so) corresponds to a period when interest rates were very high. 1. Low unemployment. Back in the 1980’s when unemployment was close to 10%, it was much riskier to be in debt. Not only because people felt their own jobs were insecure, but if you lost a job it could take a much longer time to find a new one. But unemployment has been historically low for over a decade now, which may make people feel they can take more risks. 2. Changes to bankruptcy laws. As I recall, changes have been made in the last decade that makes it easier to declare bankruptcy. This also lowers the risk of carrying large amounts of debt. 3. New lending instruments. The wider availability of credit gives more people the option of borrowing money, reducing the need to save for purchases. Lots and lots of factors… ---
**Author:** ![Maeglin](https://avatars.discourse-cdn.com/v4/letter/m/8baadc/32.png) [@Maeglin](https://boards.straightdope.com/u/Maeglin)\ **Post date:** [February 3, 2006, 3:16pm UTC](https://boards.straightdope.com/t/americans-saving-less-money-discuss/342307/40 "2006-02-03T15:16:14Z")
The savings rate is also highly elastic with respect to the price of goods and services. High energy prices caused those in the lowest income buckets to liquidate their savings and to revolve on credit cards in order to get through tough times. Dipping into savings to cover icnreasing expenses is cheaper and easier than liquidating investments. As real consumer prices outpaces real wage growth, people open their piggy banks before selling their houses. Combine the increase in revolve balances with the compliance of credit card companies with federal laws regarding minimum payments and negative amortization. Minimum payments have increased significantly, thus straining the budgets of those least able to cope with increased pressure. Do you liquidate your savings that yields 1.5% to pay down debt that accumulates at 14.99%? Survey says yes. Inflationary pressures also offer a powerful disincentive to savings. If I put my change in an ordinary savings account, my money will contract by ~2% per year. It takes more financial savvy (and a much higher minimum balance) to stagger CD investments or to use a high yield/money market account. Even in a high yield account, the real gains are only ~1%. A person might look at that number get think that he gets a lot more value out of a HDTV that he can enjoy for two years than the $10 that will acumulate in his savings account. This may not be a healthy decision, but it certainly is a rational one. The only thing, in my opinion, that will induce Americans to save is if domestic demand for manufactured consumer goods in major exporters increases. If the price of a DVD player increases faster than the price of, say, necessary nondurable goods, the tradeoff between buying and saving will be costly and we can stagger our way to a healthier global equilibrium. [Previous page](https://boards.straightdope.com/t/americans-saving-less-money-discuss/342307.md?page=1) [Next page](https://boards.straightdope.com/t/americans-saving-less-money-discuss/342307.md?page=3)