10/3/2012 5:12 PM ET|
Did the economy kill saving?
Americans have started putting away a tad more money, but we're not doing nearly enough to build wealth and fund retirement.
Americans have never had much love for fiscal puritanism. We're a nation of risk takers and consumers. We want it all. We want to hit it big. We don't want to sacrifice the pleasures of today by saving for tomorrow.
Yes, I know the economy stinks, and saving isn't easy. Wages have stalled. The unemployment rate is still above 8%. Home prices are off. Stocks have recovered from the recession, but they have merely returned to highs reached years ago. Saving can also seem pointless when returns -- from investments, savings accounts or whatever -- are low. A lack of disposable income makes it even harder.
But the truth is, even in good times, we didn't save. In the 1970s, when the economy's debt-driven growth, high inflation, favorable demographics and steady increase in asset prices meant it wasn't so hard, we didn't save. We consumed.
From 1976, when the oldest baby boomers were hitting their 30s, through the peak in 2007, household net worth grew from $5 trillion to $67 trillion -- mainly because of the rise in home prices. Accounting for inflation, the rise was around $24 trillion in 2012 dollars.
Yet starting that same year, the savings rate fell from around 10% to a low of 1% in early 2005. And household debt rose from 70% of disposable income to a peak of 134% in 2007. Not only were people not saving, they were borrowing against their new wealth to spend even more.
Now, despite an epic housing bubble, retirement portfolios constrained by the fact the Standard & Poor's 500 Index ($INX) is at levels first reached in 1999, and household net worth below its pre-recession peak at $63 trillion, the savings rate has increased to 3.7%. This is an improvement, but it's far from enough. And we've only started to work down our debt, which has fallen to 113% of disposable income, thanks mainly to mortgage defaults. (Because of falling home prices, debt as a percentage of assets has actually increased.)
Moreover, people who are saving are taking fewer risks, selling stocks and piling into bonds and other fixed-income investments, lowering their potential returns in an environment of ultralow interest rates from the Federal Reserve.
The truth is that for most Americans, saving is dead. People are simply not putting away enough to fund a comfortable retirement, rebuild balance sheets damaged by the housing bust or benefit from the Fed's stated goal of boosting the prices of stocks and housing. And they're not taking enough risks with the money they do save to earn decent returns.
Straightening this out isn't easy, but I'll outline the way to do it below. And it has to be done, unless your retirement strategy involves freeloading off your kids, who'll have problems -- like massive student loan debts -- of their own.
Why saving seems so hard
Why does saving seem like an outdated concept?
Well, part of the reason is that Americans don't like to lower their standard of living unless they absolutely have to. Thus, while wages and some assets have bounced back (to a degree) from the recession, the added capital is going into things like the surge in auto sales or smartphones instead of building -- or rebuilding -- wealth.
That leads Morgan Stanley analysts to believe that Americans aren't saving more simply because they don't feel they can, given budget constraints.
Saving is a also a lower priority here than in places like Germany or even China. It's a cultural thing, too.
And Americans are protecting what money they have saved out of fear of recent market volatility, which explains the shift into "safe" assets like bonds.
What Americans have
Let's take a look at where things stand for the average American.
Because the country's wealth and income are concentrated at the top, economywide measures of income and net worth are somewhat misleading. The Fed's 2010 Survey of Consumer Finances, the latest available, gives us a clearer picture. It suggests that even middle-class, well-educated families are under strain:
- Median family income is down 7.7% since 2007 and stands at $45,800. For families whose primary earner has a college degree, it's down nearly 10% (but down only 1% for those whose primary earner lacks a high school diploma).
- Median net worth is down nearly 40%, from $126,400 to just $77,300 -- returning to levels last seen in the early 1990s. For those with a college degree, median net worth fell 34.6% to $195,200.
- The percentage of families that saved fell to 52% from 56.4% in 2007. Compare that percentage to the 62% of families with a college degree. Back in 2001, nearly 60% of all families saved.
While the wealthiest among us are enjoying a rebound, thanks to a resurgent stock market, the wealth of middle-class families depends much more on home prices. While the Dow Jones Industrial Average ($INDU) has been pushing to new post-recession highs, home prices are just now starting to get up off the mat.
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Let's not forget that.
I get a kick out of the mixed messages we get from government:
spend, it's a consumer-driven economy, do your part.
Save, you're not being responsible if you don't save money.
Ok, I'll be happy to do both when and if I ever get enough to be able to do both. But it won't be happening with the costs of everything going up like they are while income is steadily going down.
Save what? Nothing is left over. After year and years of Greenspan Economics (Started with Clinton, kept going with Bush and still going) with credit given out to anyone who asked whether they could afford to or not, you have to start paying for it. It took 20 years to get here it will take a long time to recover.
But why are banks getting money for nothing then loaning it out if they do for 6%. That is an easy 6% profit. Why do we get only 0.5% if we try to save? 2-4% profit margin is the historical level. Saving money does not even keep up with inflation. You are losing money saving it. It is time to get someone in the Fed Reserve that knows what they are doing. Someone that know what it takes to earn a living not an idiot sucking on silver spoons.
Yes the economy killed savings. So did the Federal Reserve, and a lame presidential administration.
But debt is doin alright!
where do you find these clowns to write these articles???? "Did the economy kill savings??
ummm...does a bear sh*t in the woods, does the sun come up in the east???? How f**king stupid a question can you come up with????Please pay me what your paying this genius and I'll guarentee you I can come up with better crap than this....
What "killed" savings in America? First, let's be sure that we all agree on what we mean when we say "savings", before we try to actually answer that question: IF we mean "to put money into a bank (or similar), as in a savings-account", then the answer to that question is truly simple: WHY give my money to the bank? They don't pay any interest (OK, 0.1% per-annum IS "interest", but... at that rate, leaving your money in that savings-account will "earn" you about 1.1% over TEN years! So, you put in $100 today, and in 2022 you get back $101.10. wow.). Not to sound mean-spirited regarding those bankers or anything, but what has KILLED "saving" for me is that I can do just about as well if I simply put my money into a sack in my closet (or stuff that mattress, bury it in a can in the yard, etc. etc.). I cannot see WHY I should let the bankers have my money and use it to their advantage - there really is very very LITTLE risk that I'll lose my cash by having it burn up or get stolen from my house. And, if I keep it at home, at least I can play with it and admire it and stuff! Given that they don't wish to pay for that privilege, better me then them!
Putting money into stocks and bonds is NOT, in the narrow definition, "saving". But, in reality, what folks are doing by EITHER putting it into a sack, putting it into the bank, OR putting it into stocks and bonds - investing it - is to FUNCTIONALLY SAVE IT for another day - the difference being whether you have any potential to GROW what you "saved". IF your primary concern is the finite security of today's cash, as versus having enough tomorrow - might just as well put it into a sack! It's really about as safe as if it were in a bank, and you can at least touch it whenever you wish. Of course, putting money into a sack, or into a SAVINGS account at 0.1% per-annum interest are both sure ways to guarantee that you will end up with LESS VALUE "tomorrow. That's right, folks! Inflation continues, and SAVING money means LOSING VALUE!
That, in a nut-shell, is what has KILLED SAVING in America. To save money, in that narrow definition of above, as if it were a gallon of milk or gasoline in a bottle, is to eventually simply lose it. It becomes less valuable into the future. So Americans who have any EXTRA to "save" (and the economy has certainly put paid to that for many!) really should be wary of "saving".
Me? I'll stick to INVESTING my money for my future, in the strong expectation that INVESTING has the best chance of leaving me with MORE VALUE into the future, when I'll need it! SAVING is DEAD, to me!
BO,MO, and Jo need to go. Theyve flipped up everything theyve touched.Youve not done your job, so we MUST let you go.
I dont know who or what killed savings but Im on an extended pay freeze. My common charges are going up, gas went up, utilities went up, groceries are up (thank god I have no kids). I definitlely am hurting a bit. Not too much but feeling the pinch. I am considering cutting cable, but for the winter months it wont do...i hate being out in the cold and cable keeps me company. My cell phone I could do without. I need electric (heat) and gas (to cook). I dont shop. I dont drive everywhere so I make gas last....my student loan payments arent going away anytime soon. Not much else to cut back on.
Considering renting my place out next year or selling it and paying off student loans. I hate being a slave to bills...either way I'll need a place to stay..LOL!
so the advisor is reccomending equities and trading which of course the retail investor has
no chance of doing successfully because he or she is up against a computerized trading market
which is a losing situation but still the advisor has his money in cash while telling us that cash
in the bank is not the place to be...
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