February 25, 2016 Reading Time: 2 minutes

When it comes to personal savings, Americans are doing better than many people think. But there’s still a lot of room for improvement, especially when you look at it in a historical context.

Every month, the Bureau of Economic Analysis produces monthly estimates of personal income and spending. As part of the report, the bureau estimates personal savings as a share of disposable income, referred to as the savings rate.

By this estimate, Americans are abysmal savers. Yes, it’s risen from the lows of the mid-2000’s,  but still measures under 6 percent.

However, the BEA measure has some flaws. For one, it includes capital gains taxes paid, but not the capital gain.  There are a number of other issues, but the important point is that the savings rate in America is substantially higher if measured using flow-of-funds data, and using definitions from the Federal Reserve. According to this measure, personal savings are around 10 percent, well above the BEA estimate.

Unfortunately, both measures show the same longer-term trend down. By either measure, savings rates in America are around half what they were in the late 1960’s through late 1970’s. With most corporate defined benefit plans disappearing and Social Security on very weak footing, more and more Americans have, by necessity, taken responsibility for their own long-term financial health.

Regardless of how it’s measured, a higher savings rate for most Americans might be wise advice.

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Robert Hughes

Bob Hughes

Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.

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