Negative savings rate worrisome

NEW YORK – Now that America’s savings rate has been negative for an entire year, a first since the Great Depression, the question is whether we’re a spendthrift nation on its way to the poorhouse or whether we’re looking at the wrong numbers when we calculate savings.

The personal savings rate is, essentially, the amount of after-tax income left once household bills are paid. It was 10 percent of disposable income from 1974 to 1984, according to the Bureau of Labor Statistics. It fell to 4.8 percent by 1994, and was negative for all of 2005. As of January, the personal savings rate was minus 0.7 percent.

European countries count capital gains and home appreciation when they calculate personal savings, said William Hummer, chief economist at Wayne Hummer Investments. “Our savings rate is understated,” he said. “I think it’s wrong.”

The other side argues that American consumers simply spend way too much.

To prepare for retirement, “aging workers should be building their nest eggs and paying down debt,” a recent Federal Reserve note said. “Instead, many of today’s workers are saving almost nothing and taking on large amounts of adjustable-rate debt with payments programmed to rise with the level of interest rates. Failure to boost saving in the years ahead may lead to some painful adjustments in the future. …”