SAVINGS

(FED Bank Boston 1990) The national rate of savings declined sharply in the 1980's from a postwar average of about 8% to 2% by the end of the decade. From 1950 to 1970, the 8% rate reflected personal savings of 6%, business savings of 3% and government savings of minus 1%. In the 80's, national savings fell to 3% in the first half of the decade to 1.4% in the second half. Part was due to the expanding federal budget deficit which rose from 1% to 3% due to tax cuts and defense spending and part was due to lowered business savings, dropping from 3% to 1%. Personal savings also dropped. Part of the decline was due to reduced pension fund contributions as stock prices went up and managers ran into the full-funding limitations which restricted tax deductible contributions once plans have reached designated funding levels. (But that does not explain why 401(k)'s, IRA's and other plans did not pick up the slack.) Certain statistics indicate that the savings rate actually changed little since there was extensive understating of homeowners equity and a slight overstatement in the consumption of durable goods. Unfortunately, and as addressed continuously in this newsletter, the recession and the drop in residential real estate values has lowered homeowners equity significantly. Couple that with the extensive use of HEL loans and the equity (savings) was reduced further. After all is said and done, the alternative use of personal real estate as a savings vehicle involved too much risk- and didn't work. We must find a way to increase savings, but it won't be done with this high budget deficit.

MO' MONEY 1993: or less money actually since U.S. consumers are still saving at a dismal 4.1% after tax rate. Even worse, savings go down as expansions- albeit even our weak one- occur. Compounding that problem is the fact that foreign countries are not only savings more but are actually increasing the amounts.

Consumer Savings

Japan 18.1%

Germany 14.8

Britain 12.3

France 12.2

Canada 11.3

U.S. 4.1

SAVINGS: (Fed Bank of Philadelphia) Between 1980 and 1991, Americans saved 6.4% of disposable income versus 9.8% for OECD Europe and 15.7% for Japan. And since the mid 80's, the rate of household savings in the U.S. has been well below its historical average.

FINANCIAL SAVINGS: (WSJ) The median white household between the ages of 51 to 60 has less than $18,000 in net worth, excluding the home ($90,000 when the house is added). Blacks have less than $500 in liquid assets. Median household will be able to replace just 69% of its income in retirement with only 1/3 coming from private household savings; 24.1% from social security; 21.3% from a pension; 13% from real assets and 10.9% from financial savings. The Rand Research group did the survey of 20,000+ individuals and simply concluded that Americans aren't saving enough for their retirement.

SAVINGS 1996: Here is an interesting commentary regarding the reason some people don't save. A study by the Brookings Institution shows that while government spending has dropped from the 1960's, household consumption has risen form 68.8% in the 1960's to 76.6% by the early 1990's. And the major jump is due to medical costs such as Medicare and Medicaid which has tripled from 4% to almost 13% of GNP. Consumption by men age 70 to 79 rose by 148% over the past three decades, adjusted for inflation, while men in their 40's showed only a 63% increase. Women were about the same. The economists noted that"today's 70 year olds are consuming, on average, roughly 1/5th more than 30 year olds."