America loves the fresh minty taste of debt!

Personal savings in the good ol’ US of A have dropped to their lowest levels since the great depression. According to this article on MSNBC “The savings rate has been negative for an entire year only four times in history — in 2005 and 2006 and in 1933 and 1932. However, the reasons for the decline in the savings rate were vastly different during the two periods.”

During the Great Depression when one-fourth of the labor force was without a job, people dipped into savings in an effort to meet the basic necessities of shelter and clothing.

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.

The article goes on to point out that the timing of this low savings era could be particularly bad with an estimated 78 million baby boomers approaching retirement. Instead of saving for retirement many boomers are spending all of their income and then some.

Unfortunately Americans aren’t the only ones with this problem. From the most recent data I could find The BC provincial savings rate was -7.9% in 2004.

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patriotz
patriotz
13 years ago

For example, I count as a negative saver because I purchased a house last year (Omaha, Nebraska, so not a bubble home) and then I spent $30K finishing the basement. So I spent $230K more than I made last yearWrong. Buying a house is an investment, not consumption. Just like buying a savings bond. The basement redo is an investment, too, although it may show up in the stats as consumption.Living in a house is consumption, whether you own it or rent it. And the value of that consumption is the market rent.To answer the previous poster, the savings rate is the difference between income and consumption. You are incorrect, asset values don't figure into it.

Barney
Barney
13 years ago

Surely a savings rate is far easier to calculate than the examples above. How much money did you have in savings (easier liquidable cash or assets) at the beginning of the year, how much at the end. The difference being your savings rate?Takes houses and "locked in" items out of the picture altogether.How else is it calculated?

betamax
betamax
13 years ago

clearly BC'ers can't be spending 7% more than they earn each year?Are you being funny? Sure they can! The more you make, the more you spend. Look around, a lot of the apparent wealth you see is all financed by easy credit. You'd be amazed at how many of those luxury vehicles you see everywhere on Vancouver roads are leased.

patiently waiting
patiently waiting
13 years ago

I wonder what BC's savings rate is now. My guess is low interest, loose credit and skyrocketing real estate prices have made it even worse…much worse.

digi
digi
13 years ago

I also assumed that they look at a mortgage payment as 'spending' – they wouldn't compare the total owed on a mortgage to one years worth of income – they'd count one years worth of mortgage payments against one years income which is a different thing altogether.I'm not sure how the provincial number is figured though, clearly BC'ers can't be spending 7% more than they earn each year?

dingus
dingus
13 years ago

You sure that's how that's calculated? Seems to me a house purchase should be controlled for, as the monthly expenditures on mortgage and principal would count as spending, so that would be counting that double. And if those business and real estate loans were counted as income when you received them, then that works. If not, it doesn't. Or, put another way, if those loans were used to generate income, then that income counts and debt repayment counts too. It's negative savings currently that is intended to give you higher future income.Anyway, it's the comparative that's interesting. If it's been calculated consistently for the period they're talking about, it still does say something about the era we are in.

Robert
Robert
13 years ago

The statistics have a couple of problems. For example, I count as a negative saver because I purchased a house last year (Omaha, Nebraska, so not a bubble home) and then I spent $30K finishing the basement. So I spent $230K more than I made last year. However, because of the wealth effect, my wealth is the same. I would feel differently if I were in a bubble region of course.Similarly, I spend $5K/month against the principle of various business and real estate loans. This counts as spending but, since I am liquidating debt, I feel $5K per month wealthier. Again, I would feel differently if any of my investment properties were recent purchases in bubble regions.