Savings at Lowest Levels Since Great Depression

Well, the spend­ing habits of Amer­i­cans are get­ting pro­gres­sively worse:

Peo­ple once again spent every­thing they made and then some last year, push­ing the per­sonal sav­ings rate to the low­est level since the Great Depres­sion more than seven decades ago…

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.

What­ever the rea­son for the low sav­ings, econ­o­mists warn that 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.

The sav­ings rate is com­puted by tak­ing the amount of per­sonal income left after taxes are paid, an amount known as dis­pos­able income and sub­tract­ing the amount of spend­ing. Since the fig­ure has dipped into neg­a­tive ter­ri­tory, it means con­sumers are spend­ing all of their dis­pos­able income and then some.

This is depress­ing. As I said in a prior post, it’s not that hard to put one’s self on sound finan­cial foot­ing. If Amer­i­cans can­not gain some fis­cal san­ity today, then future gen­er­a­tions are going to pay for it tomorrow.

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