Every so often we hear about how the personal savings rate is dismal in this country--and that is a sure sign of the collapse of Everything We Hold Dear in our economy. We're a nation of big spenders about to bankrupt ourselves by spending and not saving: the perennial grass hopper about to starve as winter approaches.
But for some reason, even though for decades we've been told that our spending patterns are going to eventually lead to an End Of The World As We Know It--because no savings means no investment pool for companies and a nation of people who are going to have to go on the dole because they never saved a dime for their retirement, the sky just never seems to get around to falling.
Well, here's why: A Nation of Big Spenders
The trouble with the official savings rate is that it excludes some items that people intuitively count as savings, notes Susan Sterne of Economic Analysis Associates. A big omission is the capital gains -- aka profits -- on housing or stocks, both realized (if you sell) or on paper (if you don't). If your home or stocks increase $10,000, you may feel comfortable borrowing $4,000 to spend. You've still got an extra $6,000 in savings. But the savings statistics ignore these value changes; all they show is that you've saved less by spending another $4,000.
So, let's get this straight.
Right now I have 10% of my after-tax income being pulled out of my paycheck to buy stock from a stock purchase plan. This stock purchase plan has the advantage that after a six month period, I get the stock at a 15% discount--which means that I immediately get a 15% increase which, even after capital gains, is sizeable. In the past two years I've managed through this program to save tens of thousands of dollars.
Yet the statistics suggest I'm saving nothing, because stock purchases do not count.
Our nation's infactuation with the stock market also doesn't count--even though it is the primary engine by which companies raise money for funding future expansion--because stock purchases do not count. Despite the fact that we're constantly told that by not saving, we are depriving companies investment funds for future expansion.
Corporate savings also doesn't happen to count--this is only the personal savings rate. And the fact that my house has more than tripled in value--leaving me with an almost insane amount of equity--doesn't count as well.
(Rolls eyes) The next time you hear about the nation's personal savings rate being at a dismal level, just remember two things. The current national savings rate, which takes into account corporate savings, is hundreds of billions of dollars greater than the current national defecit. And second, our country's infactuation with stock purchase programs both negates the comment that somehow our lack of savings is depriving corporations of needed investment funds, and isn't counted against the personal savings rate. (In fact, our increased interest in stock purchases essentially counts as corporate savings, not personal savings--even though a number of people ultimately own the stocks.)