Earlier this year, the Commerce Department reported that the U.S. personal savings rate for the entire year of 2006 fell to negative one percent. Yes that is correct, Americans spent more money than they brought in, and ended up with less saved up than they did the prior year. This is the lowest saving rate since the Great Depression. During the Great Depression the lack of savings was primarily 
due to the fact that so many people didn't have a job, so they couldn't save if they wanted to. Now, the unemployment rate is low, but consumers keep on spending.
It seems that the American has become more and more consumer-driven. The urge to buy the best and newest product has increased to never before seen levels.
The constant spending is already coming back to hurt some Americans. Part of the negative savings rate is due to the housing boom from the past few years, which is now turning into the housing bubble of 2007 and beyond. Some of those American consumers that were not saving anything, but rather were borrowing huge amounts of money to purchase expensive homes are now being foreclosed upon.
A negative personal savings rate cannot be good for the economy as a whole, since less saving of money will eventual catch up to the consumer. If personal savings rates do not increase in the near future, the economy could suffer greatly from this often overlooked measure.
This is incredible - makes me feel luck to be with a company that provides mechanisms for forced savings such as pension contributions and savings plans. Discipline is such an important component to forced savings that without it, most people will spend what they earn.
The other thing this suggests to me is that salaries are not keeping up with the cost of living. I don't know this for a fact but the info suggests it.
Posted by: The Dividend Guy | September 28, 2007 2:48 PM | Permalink to Comment