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Spendthrift nation

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  • Kevin J. Lansing

Abstract

In September 2005, the personal saving rate out of disposable income was negative for the fourth consecutive month. A negative saving rate means that U.S. consumers are spending more than 100% of their monthly after-tax income. The recent data are part of a trend of declining personal saving rates observed for two decades. During the 1980s, the personal saving rate averaged 9.0%. During the 1990s, the personal saving rate averaged 5.2%. Since 2000, the personal saving rate has averaged only 1.9%. ; This Economic Letter discusses some of the factors that appear to be driving the secular decline in the personal saving rate. These factors include rapid increases in stock market and residential property wealth, which households apparently view as a substitute for the quaint practice of putting aside money each month from their paychecks. Rapidly rising stock and house prices, fueled by an accommodative environment of low interest rates and a proliferation of \\"exotic\\" mortgage products (loans with little or no down payment, minimal documentation of income, and payments for interest-only or less) have sustained a boom in household spending and provided collateral for record-setting levels of household debt relative to income.

Suggested Citation

  • Kevin J. Lansing, 2005. "Spendthrift nation," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue nov10.
    • Handle: RePEc:fip:fedfel:y:2005:i:nov10:n:2005-30
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    Citations

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    Cited by:

    1. Bunting, David, 2009. "The saving decline: Macro-facts, micro-behavior," Journal of Economic Behavior & Organization, Elsevier, vol. 70(1-2), pages 282-295, May.
    2. Kevin J. Lansing, 2011. "Gauging the impact of the Great Recession," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue july11.
    3. Magas, István, 2008. "Megtakarítások és külső finanszírozás az amerikai gazdaságban. A hitelpiaci válság háttere (1997-2007) [Savings and external financing in the American economy. The background to the credit-market c," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(11), pages 987-1009.
    4. Frank N. Caliendo, 2009. "Is Social Security behind the Collapse of Personal Saving?," CESifo Working Paper Series 2746, CESifo.

    More about this item

    Keywords

    Saving and investment;

    Statistics

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