Readers were right to chide me yesterday for saying, in a discussion of the continuing decline in the personal savings rate in the U.S., that "Americans appear congenitally unable to spend less than they earn ... a vice whose genesis is right here at home."
I'll get to my groveling apology in a second. But a couple of readers also wanted to know a little bit more detail about what the personal savings numbers represent. So let's start there.
According to the Bureau of Economic Analysis, "Personal saving is the amount left over from disposable personal income after expenditures..." But while interest and dividend payments are included in the definition of income, capital gains appreciation is not.
In other words, your net worth, as represented by the steadily increasing value of your house, your 401K, your IRA, your mutual fund holdings, could be going up, but your savings might still be negative by the BEA's definition. This is one reason why conservatives enjoy pooh-poohing the long-term decline in the personal savings rate. As measured in terms of net worth, the U.S. is rich and getting richer.
But net worth is not distributed evenly. And for lower- and middle-income workers, as indicated by a survey conducted last year by the Employee Benefits Research Institute, the failure to save is directly attributed not to profligacy, but to the cost of healthcare, child care and daily bills.
So, I beg forgiveness -- my generalization was far too sweeping. For a growing number of Americans, that unpaid balance on the credit card bill doesn't necessarily represent moral laxitude.
But I don't think that changes my basic point, which is that the continuing downward trend of the numbers is something to be seriously worried about. Because it doesn't only represent the weakening of living standards for the less well off. Those overall net worth figures for the rich offer little justification for complacency. Real estate values may be set for a major decline that could drag the stock market down with it. And even without potential asset deflation, the money that is represented by that inflated net worth is not being used productively.
Here's the Bureau of Economic Analysis' explanation for why capital gains are not included in the figures: "Capital gains represent changes in the price of already-existing assets, but only an expansion of the real stock of assets via investment represents an increase in the wealth of a society. Unlike saving out of ordinary income, capital gains are not a source of funding for needed investment. A nation that does not save ... must either do without the investment needed to maintain or improve its standard of living, or it must depend on saving by other nations for the financing of its investment needs."
The poor aren't saving because they can't. The rich aren't saving because they're riding high on their inflated net worth, confident that should they ever need to, they can unload some stock or sell off the second house to get some cash. Not a pretty picture.