Negative Savings Rate? I Don't Think So
It is one of those things you see or hear in the news and think "That can't be right" but go on with life and forget about it. Americans have negative savings. Again, that makes no sense but it was on the news so it must be right.
Wrong. Finally read an article where the issue was discussed in detail and a few interesting things about the numbers popped up. It seems that the 'savings' definition is a bit skewed.
First the 'savings' number does not include capital gains. If you bought Pepsico at $16 and it split a couple of times on its way to $64 you have made some money. Or any stock that you bought and it went up as most have. BUT if you didn't sell it and REALIZE the gain it is not counted as savings.
'Savings' also doesn't include any capital gains ie., increase in value, of your house. Personally, I don't have any problem with that because I look on a house as a place to live. But if you live in California, your house is your retirement plan. I don't like that but a lot of people have made a lot of money buying overpriced California real estate so I will not complain if you count the gain as 'savings.' I don't mind but economists and government statistics do and thus the gain is not in the 'savings' number. And the number, the number for capital gains on stocks and housing, has averaged around $3 trillion a year over the last few years. Since I cannot visualize $3 trillion I guess it is a lot, a whole lot. The article I read calculated the American savings rate at 23% if capital gains were included. A positive 23%, not negative.
Another fact that might surprise you and helps explain the 'negative savings' rate--the formula does not include contributions to 401k or 403k plans. Simply put, the thing you consider to be your biggest saving vehicle is not included. Unless you take the money out and then it is counted as negative savings.
Finally anything you buy to produce income--PCs, truck, R&D, whatever--is counted as spending, not productive investments.
As my mother told me, "Figures don't lie but liars figure." I'm not implying the anybody is lying here but a look behind the numbers is warranted before we all get labeled as spendthrifts.
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