Posted on 02/01/2006 6:04:26 AM PST by AZRepublican
The Commerce Department reported Monday that the nation's savings rate was a negative number last year.
You read it right. The average household didn't save a dime last year. In fact, the report said, Americans either took on more debt or dipped into previous savings in 2005 - to the tune of one half of one percent of their after-tax income.
The savings rate in the United States hasn't been this low since the Great Depression. But back in 1932 and 1933, unemployment was rampant, and many families had to break the piggy bank just to keep food on the table. This time, the analysts are saying, Americans seem to be spending money they don't have just to maintain a lifestyle to which they've become accustomed.
(Excerpt) Read more at news.cincypost.com ...
No it's not. They look at after tax money left after consumption. Because IRA's and 401k's are pre-tax, they're not included.
They also don't count realized capital gains. They do deduct the capital gains taxes paid. The savings rate is a flawed statistic.
Yes, that's why it is inaccurate.
My point exactly. Housing couldn't have been any hotter than two years ago, and these numbers are skewed by using the national average, rather than more realistic local averages.
Hot real estate markets like Vegas, Arizona, Florida and places in California greatly distort national averages. I'm not saying the past couple of years haven't been good for real estate--they have. I'm simply saying that for personal savings--which this article was about--is about the long-term. You're not going to get anywhere near 17% over the long haul in most real estate markets.
Home ownership is a leveraged investment for most people. A lot of people only put 10% or less down these days. So taking payments out of the equation to make it simple (you either pay rent or pay a mortgage), a 1% increase in the price of the home is like a 10% rate of return on their downpayment. Problem with leverage however, is a 1% decline takes away just as quickly. And since transaction costs can run up to 7% to buy or even more to sell, even a property increasing in value will take several years to break even on. Things have been bad here in Michigan for sellers. I see a lot of them bringing money to closings instead of recieving a check, or at the very least thinking they have more equity than they really do. Don't use your house as an ATM!
Well, you won't know exactly how much your house is appreciating until you sell it.
But I'l give you the benefit of the doubt. If you happen to be living in a market where houses are appreciating that much, good for you. I think you're in a small minority.
"Contributions to IRA and 401(k) plans are counted toward the savings rate. So when the rate is negative it becomes very clear that a lot of people aren't participating in retirement plans."
The gains within the account are not counted however.
Sage advice! Actually, there's probably a "smart" and financially-savvy way to do this, but only under ideal and very conservative circumstances; i.e., assume your house has appreciated much less than it has, and only when you've taken a reasonable dent out of your owed principal.
No it's not. That article is incorrect. I'll find a source shortly.
We need to take into account the increasing number of seniors who are not saving anymore, but spending their savings.
Why save money if those who have money will have that money taken away from them to give to those who do not have money, but want money?
Also, why save money when the government will tax that money to pay for illegal aliens or welfare groupies?
We were all told to "be wise with your money, invest and save" but the worthless slugs who live off welfare get free money off of our sweat and tears.
Worthless slugs get rewaded--self-sufficient "attemptees" get screwed. This is the USA today. This is why the savings rate is so low.
When the hurricanes came, those with homeowners insurance paid a HUGE deductible. Those without homeowners insurance got free FEMA money (usually, far more than needed. The fraud is incredible). They will get things back to normal with free money (from taxpayers).
We were also told to save for retirement. We saved, but we will be taxed to death to pay for those who did not save so the savings we "saved" will be lost to those who did not save but are not getting OUR savings--you can take that to the bank, assuming, of course, you will have a reason to go to the bank the way the government will tax us into oblivion.
Could be.
What percent of homeowners do you figure is in in that category?
I don't have a large sampling; home equity loans are not typical light conversation in the office. I will state that my brother-in-law and his wife remortgaged within the first two years. Given their lifestyle, I suspect the 'equity' they reaped is already spent.
I could only speculate. I could scrounge up a dozen anectdotal stories of people who owe more on their 30-year fixed mortgage than when they took it out ten years ago, people who spend $8000 in refinancing fees to get $10000, etc.
But even if I had a good estimate of how many residences there are in the U.S., the total outstanding mortgage debt in the country, and how much of that is from recent refinancing, I'd need something else to figure out how it's spread around.
You might be able to extrapolate how many people are borderline from foreclosure rates and 90-day late numbers, but you would miss people who are maxed-out but not late in their payments.
"Americans seem to be spending money they don't have just to maintain a lifestyle to which they've become accustomed."
What's in your wallet...
Unless your home is paid for, you don't own it....period. If you don't own your home, having some savings is a good thing.....I've never seen anyone eat their home in bad times.
The story is more complicated than the article indicates, but this is still bad news. Not helping is that financial institutions encourage people to make unwise choices.
You are mistaken. From your own post:
The difference is disposable personal income. From this it subtracts consumer non-investment expenditures, including retail sales, utilities, interest payments on consumer debt, and money people send to friends and relatives overseas. For housing, the bureau counts rent for renters or mortgage interest, property taxes and insurance for owners. It does not subtract down payments or principal payments on a house. What's left is personal savings.
Because IRA and 401k contributions are taken out first, before taxes, they are never part of disposable income and therefore not counted as savings.
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