Quick: What’s America’s national savings rate? A generation ago, you might have guessed 10% and been close. More recently, there has been a lot of hand-wringing about a precipitous decline in how much of their income Americans are saving—down, according to the U.S. government’s Bureau of Economic Analysis, to just over 2% this year. There was a brief period after the Great Recession when people were saving at higher levels, up to nearly 9% according to BEA figures, because they were getting serious about paying off debt. The trend has been dismal since then however.
Except…The BEA went back to the numbers and realized that it had been wrong about the U.S. savings rate, at least since the beginning of 2002. The current savings rate of this year is shown to be just over 6%. What happened? BEA researchers pull information from a variety of sources, to determine average income levels and average total expenditures. The difference is assumed to be the savings rate. The revised figures came when the researchers took a second look at data coming from the IRS and realized that small businesses were not claiming their full income due to a variety of deductions they were entitled to. That revision caused the aggregate savings rate to jump.
What does that mean? It means that many people are still living somewhat precariously, saving far too little for emergencies and their future retirement. But those who own businesses are doing much better than anybody at the government apparently realized—and the economy as a whole has enough capital from savings to sustain it without fear of low savings triggering a looming recession.
This article was written by an independent writer for Brewster Financial Planning LLC and is not intended as individualized legal or investment advice, and any opinions expressed are solely those of the writer.