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| Thought Leaders: Economy |
Are You Saved?
Ken Fisher
06/01/2007
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Americans are the world’s biggest
savers, and our negative personal saving rate proves it.
I hope that this rate will drop even more, but that’s an
assertion few would agree with. Pundits pontificate that we’re profligate
spenders, living beyond our means and drowning in debt, (greedily and stupidly)
spending all we make, and then some. Our "diss-saving" is unsustainable, so the
thinking goes. Consumer spending will cease, whacking the economy and the stock
market.
This is nearly universally believed. But I would argue that
universal beliefs are frequently baseless myths, and you should ask yourself,
"What do I believe that’s actually false?" So, is it true our sinking saving
rate will wreak havoc? Go one step further and inquire: "Could the negative rate
actually be good?"
The chart above shows America’s plunging personal saving
rate in red. Note that it has been sinking for 20 years; we’ve been diss-saving
for a generation. Yet, household net worth, shown in blue, has grown the entire
time, even though saving turned negative. Some may cry foul, claiming
residential real estate is largely driving our net worth. Wrong. The green line
strips that out and the trajectory remains. Our saving rate wanes, yet our net
worth waxes.
How Can That Be?
The problem isn’t profligacy. The problem is the rate
methodology. Here’s why. First, capital gains aren’t included in the chart.
According to our official saving rate, if you invest $10,000 in stocks, later
sell for $20,000, and take your gains and walk away, you may think you saved,
but you’d be wrong. Even odder, based on the rate, Bill Gates became the world’s
wealthiest guy by never saving. He merely built Microsoft (once worth nothing
and now with a market cap over $270 billion), but never saved. The saving
happened inside the company of Microsoft, which the "personal" saving rate data
doesn’t take into account. Gates, the individual, didn’t save. Capital gains is
one important way Americans save. Your house, stocks, business and sundry
assets appreciate, but that’s not official saving.
What Else Is Excluded?
If your employer contributes to a pension or other retirement
plan for you, it is not included. Distributions from those plans don’t count as
saving going in, but they reduce your saving coming out. Try that one for
perverse. Nothing you can do about it; you are doomed to diss-save.
"Owner’s imputed rent," a fictitious charge of what they think
you should pay yourself to rent the home you own and occupy, also reduces
saving. Obviously, homeowners don’t pay themselves rent, so there’s no real
transaction. Nevertheless, they charge it against saving. Silly as it sounds,
it’s nontrivial and puts a $1 trillion-per-year dent in personal saving. Do away
with this one arbitrary item and our negative saving shoots to more than 7
percent of GDP. We’re suddenly super savers—and the only thing that is different
is the accounting.
Our official saving rate doesn’t reflect reality. See it this
way: The rate headed south as Americans shifted savings from the CDs, money
markets and bank accounts of past decades into appreciating assets including
businesses, stocks, real estate, pensions and more—growing their net worth. It’s
not about spending profligately, but about saving in a new and better way and
boosting productivity.
Hence, the truth: A negative saving rate can be good. Here’s
hoping for more negativity. Few investors can fathom this, relying instead on
myth. In fact, saying a negative saving rate is good angers some folks. Let them
stew. You prefer to be right, and the truth here is that our official saving
rate is backward and broken. Americans are the world’s best and most consistent
savers, but you’d never know it from looking at our official saving rate.
Ken Fisher is author of The New York Times business
bestseller
The Only Three
Questions That Count.
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