Friday, March 16, 2007

Saving or not...

In the previous post, I linked to a report on the US savings rate and got a great question: If the savings rate doesn't include retirement accounts, doesn't that skew the results?

Here's one answer:
And another: Every year private pensions pay billions of dollars to retirees that aren't counted on the positive side in the official savings rate.

There is a rationale for this. The government books pensions as personal income when employers contribute it to a pension pool, not when it gets paid out years later, and retirees can actually spend it, said Oak Associates investment strategist Ed Yardeni, another analyst who holds higher-than-average faith in the U.S. consumer. (The idea is to measure income produced by current labor.)

But since the mid-1980s, as the population has aged, and traditional pensions for younger workers have dwindled, pension payouts have vastly exceeded pension inputs, and the gap has been getting wider. "A big discrepancy," Yardeni said.

Pension benefits surpass contributions these days by some $200 billion a year, said Franke. That's $200 billion in household income that doesn't get counted in the official savings accounts. If it were, it would add another 2 percentage points to the savings rate, I figure. [More]
I dunno - whether to include the excess of disbursements over contributions as savings is an accountant call. I'm going to go with the DOC on this one.

Regardless, if we use the same yardstick we can at least measure which way we are going and roughly how fast. My read is down and pretty.

Another point which probably has more effect is capital gains, especially house prices. My feeling is the home price boom became the savings vehicle for most of the US. This seemed like a good strategy until a few months ago.

Is our savings rate a problem? Some say no.

I think so, if only in comparison to our past and other countries. The point I was making below, is even if we are saving by means of "hidden savings" like our houses, we are certainly spending all the cash we bring home.

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