Fri Feb 17th, 2006 at 01:37:37 PM EST
This story is a light read, yet has some interesting facts, and interesting information regarding the calculation of American savings rates: Americans' Debt: Worse Than You Think? In some ways I hate to further expose the profligacy of my generation, but here it is.
But Americans may be saving even less than the government reports.
But the government doesn't figure housing expenses into the spending-saving calculation since it views housing as an investment.
That's problematic, according to Paul Kasriel, director of economic research at Northern Trust in Chicago. "I see a lot of people buying houses that seem to have a very large consumption element to them -- like granite kitchen countertops and the huge increase in square footage per person."
Interesting, since so much of our spending is on our homes.
So Kasriel does his own calculation of the savings rate. He subtracts not only outlays on goods and services, but also spending on a line item called "residential investment." It represents the value-added in housing,,,
According to Kasriel's calculation, last year Americans spent approximately $472 billion more than they earned after taxes -- a negative savings rate of 5.2 percent. That spending is double the previous year -- and a record high.
"What's amazing is that my generation, the rapidly aging Baby Boomers, are entering their prime saving years," Kasriel says.
Thankfully, there is some countervailing data and views.
Others economists disagree. They argue that retirees typically spend from their savings, which skews the savings rate lower. They point out that the government's calculation doesn't account for the rise in real estate values (and home equity). And while it captures things like 401(k)s and Individual Retirement Account contributions, the calculation doesn't include the capital gains on these accounts.
This however is a key point. After all, many babyboomers have been in savings plans for 25+ years (401k's). The impact of annual investments, not taxed when the original investment is made; matched by the employer and also not taxed; compounding over many years; and the earnings on the matched investment also not taxed; in a stock market that over this long of a period has soared;;;;;;all this means some of these accounts even for average wage earners and below (if they were left untouched) will be worth a million+.
All in all, IMHO, a good, yet short article. Worth reading.