If this were the case, then people should be saving more nowadays than they did before 1990, because they are now aware that their pensions and future economic security is at risk. In fact, the opposite holds: the personal savings rate in the U.S. is now at historical lows (it is even negative). So, despite the bad news about the actuarial bankruptcy of the Social Security system (which are correct), people are not saving more but less.
That statistic is flawed. It DOES NOT INCLUDE DEFERED INCOME ACCOUNTS like 401Ks as savings. Savings is defined as unspent take home pay. Many boomers I know are "saving" furiously and invisibly.
Actually, it includes these income accounts. Just check the methodology. In general, from a macroeconomic point of view, personal savings includes total savings minus public savings (public investment minus the government deficit) , corporate savings (undistributed earnings by companies) and external savings (which equals the huge external current account deficit of the U.S. economy).
So savings are correlated with the macroeconomic cycle. And individuals count their entire balance sheet in savings ie including their housing equity wealth.f And borrowing markets have been deregulated.
So we are surprised, how?
So, despite the bad news about the actuarial
It isn't but that is an argument that has been fought and refought here.
people
The data is bad. But savings rates usually fall if unemployment is low.
I recently read Ken Fisher's "The only three questions that count" and he makes the same statement regarding savings, that 401(k) savings don't get counted. I'd like to see a reference that states otherwise. I'd also like to understand (from a series of posts a year ago) how putting $5000 in a CD is savings, but $5000 toward my mortgage principle is not. Both acts to me have the same impact to my balance sheet. I'd love to see a "Dummies guide" to this topic or at least an explanation I can comprehend.
JOE
Yes, but savings are always a voluntary choice. Even if you have a home which is worth twice more than 10 years ago, this doesn't mean that you should borrow to pay for some vacations in Tahiti on account of your home.
In general, my feeling is that -maybe because of peer pressure- Americans are making the choice to spend as much as they can, even if they have to work full time till they are 65 to pay their lifestyles. Europeans, in general, work less and save more. This could be due to a cultural difference, or just a tax difference -taxes are higher here, and if you work hard, you take home a lower percentage of your salary than in the US. The Dutch, for example, work only about 1300 hrs/yr on average -50% less than the Americans-.
Actuarially bankrupt means that, if you keep the current system as it is -i.e., same contributions and benefits- the system will run out of money in the future. This is correct, because the ratio of retired people to working people is increasing steadily -due to higher life expentacies- and therefore you cannot maintain the same pension benefits unless you cut benefits (or raise social security contributions).
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