The Illusion Of Soaring Savings Amid Rising Economic Uncertainty

The following chart, making the rounds lately, suggests an unprecedented level of savings among Americans. The problem is that it is an illusion amid the reality of rising economic uncertainty.

Savings Economic Uncertainty, The Illusion Of Soaring Savings Amid Rising Economic Uncertainty

The Savings Mirage

To understand why the “savings rate” is not what it appears to be, you must understand its underlying construction. The website HowMuch.com recently provided that calculation of us.

Savings Economic Uncertainty, The Illusion Of Soaring Savings Amid Rising Economic Uncertainty

While the table is dated, the point is that for most, there is often little left for “savings.”

 

Lies, Damn Lies, and Statistics

There are also multiple problems with the calculation.

  1. It assumes that everyone in the U.S. lives on the budget outlined above.
  2. It also assumes the cost of housing, healthcare, food, utilities, etc., are standardized across the country. 
  3. That everyone spends the same percentages and buys the same items as everyone else. 

The cost of living between California and Texas is quite substantial. While the inflation-adjusted median household income of $68,703 may raise a family of four in Houston, it will be problematic in San Francisco.

While those flaws are apparent, the top 10% of income earners skew the rate sharply upwards. The same problem also plagues disposable personal income and debt ratios, as previously discussed  in “America’s Debt Burden Will Fuel The Next Crisis.” To wit:

More importantly, the top 20%, and specifically the top 5%, of income earners skew the measure. Those in the top 20% have seen substantially larger median wage growth versus the bottom 80%. (Note: all data used below is from the Census Bureau and the IRS.)”

Savings Economic Uncertainty, The Illusion Of Soaring Savings Amid Rising Economic Uncertainty

Since the top income earners have more than enough income to maintain their living standards, the balance falls into savings. This disparity in incomes also generates a “skew” to the savings rate.

Yes, there is a significant amount of cash and deposits relative to the economy, which is also skewed higher by falling GDP, but the wealthy have it.

If savings were indeed soaring, then the average American wouldn’t be so concerned about their financial security. Such got documented in a recent survey by SimplyWise.

Financial Insecurity

Despite buoyant markets, millions of Americans faced unprecedented financial hardship caused by COVID-19. It has upended what work, income, and employment opportunities look like, as well as retirement. It has eaten into savings, forced people into debt, and created unprecedented levels of housing instability. And while the rollout of vaccinations gives some hope, continued lockdowns coupled with the change of power in Washington and current political unrest are causing many to continue feeling uncertain about the future. Yet certain populations, including seniors, people of color, and lower income Americans, have been disproportionately impacted both by the virus itself and the instability in its wake.” – SimplyWise

1 2 3 4
View single page >> |

Disclaimer: Click here to read the full disclaimer. 

How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.