Savings rates have really jumped, will it last? And why so low for so many years?

Frugal_Millionairess

According to financial journalist Rupert Jones, "The sun is shining on Britain's savers." The article says Brits are saving more now than they have in the past five years, and a figure of 92.41 per month was given was given in the article.


I was curious about this as the U.S. savings rate has gone from zero, yes zero, to 6.9% as of May 2009.

So my questions:
1. What percent does the 92.41 per month represent for you?

2. Do you think this higher savings rate will last on either side of the "pond" (picked that new term up on these forums)?

3. Why do you think the rate has been so low for so many years?

Here in the U.S. our ABYSMAL savings rates is often attributed to a highly consumer culture. A friend from India has an interesting take on this. She thinks that since America doesn't have a class system, we use money to mirror a class system.

Everyone wants the respect that is accorded to those then who are in the highest economic class. And those who are not really in that class, can just buy the trappings, i.e. the house, designer clothes, Lexus, and then appear to all the world to be at the top of the heap. They are in fact to use a Texas saying, "Big hats, no cattle". They've spent so much creating the illusion of wealth (big hats), that they have no money left to invest (cattle).

On the other hand, you'd think people would be naturally more cautious here as there is no real safety net in America. A student of mine, from a former Soviet bloc country told us she was shocked when she was a bit late on a phone bill and had the phone service cut off, and later was a bit late on rent and was threatened with eviction. She said communism may have its issues, but there are few homeless people in her country.

So your best predictions???

malik999

Frugal_Millionairess wrote: »

According to financial journalist Rupert Jones, "The sun is shining on Britain's savers." The article says Brits are saving more now than they have in the past five years, and a figure of 92.41 per month was given was given in the article.


I was curious about this as the U.S. savings rate has gone from zero, yes zero, to 6.9% as of May 2009.

So my questions:
1. What percent does the 92.41 per month represent for you?

2. Do you think this higher savings rate will last on either side of the "pond" (picked that new term up on these forums)?

3. Why do you think the rate has been so low for so many years?

Here in the U.S. our ABYSMAL savings rates is often attributed to a highly consumer culture. A friend from India has an interesting take on this. She thinks that since America doesn't have a class system, we use money to mirror a class system.

Everyone wants the respect that is accorded to those then who are in the highest economic class. And those who are not really in that class, can just buy the trappings, i.e. the house, designer clothes, Lexus, and then appear to all the world to be at the top of the heap. They are in fact to use a Texas saying, "Big hats, no cattle". They've spent so much creating the illusion of wealth (big hats), that they have no money left to invest (cattle).

On the other hand, you'd think people would be naturally more cautious here as there is no real safety net in America. A student of mine, from a former Soviet bloc country told us she was shocked when she was a bit late on a phone bill and had the phone service cut off, and later was a bit late on rent and was threatened with eviction. She said communism may have its issues, but there are few homeless people in her country.

So your best predictions???

Are you sure you're living in the year 2009?.

Interest savings rates in the U.S are not 6.9%. Interest rates here and the U.S are very low, i.e not good for savers.

Have you taken your medication today?

gozomark

Malik - the personal savings rate in the US was indeed 6.9% in the US in May - ie 6.9% of income was saved
http://www.bloomberg.com/apps/news?pid=20601109&sid=aome1_t5Z5y8

"From 1960 until 1990, households socked away an average of about 9 percent of their after-tax income, government figures show. Americans got out of the habit in the 1990s as they saw their wealth build up in other ways, first through surging stock prices and then soaring home values, Gramley said.
That process has now gone into reverse. U.S. household wealth fell by $1.3 trillion in the first quarter of this year, with net worth for households and nonprofit groups reaching the lowest level since 2004, according to a Fed report. Wealth plunged by a record $4.9 trillion in the last quarter of 2008. "

bendix

Frugal_Millionairess wrote: »

According to financial journalist Rupert Jones, "The sun is shining on Britain's savers." The article says Brits are saving more now than they have in the past five years, and a figure of 92.41 per month was given was given in the article.


I was curious about this as the U.S. savings rate has gone from zero, yes zero, to 6.9% as of May 2009.

So my questions:
1. What percent does the 92.41 per month represent for you?

2. Do you think this higher savings rate will last on either side of the "pond" (picked that new term up on these forums)?

3. Why do you think the rate has been so low for so many years?

Here in the U.S. our ABYSMAL savings rates is often attributed to a highly consumer culture. A friend from India has an interesting take on this. She thinks that since America doesn't have a class system, we use money to mirror a class system.

Everyone wants the respect that is accorded to those then who are in the highest economic class. And those who are not really in that class, can just buy the trappings, i.e. the house, designer clothes, Lexus, and then appear to all the world to be at the top of the heap. They are in fact to use a Texas saying, "Big hats, no cattle". They've spent so much creating the illusion of wealth (big hats), that they have no money left to invest (cattle).

On the other hand, you'd think people would be naturally more cautious here as there is no real safety net in America. A student of mine, from a former Soviet bloc country told us she was shocked when she was a bit late on a phone bill and had the phone service cut off, and later was a bit late on rent and was threatened with eviction. She said communism may have its issues, but there are few homeless people in her country.

So your best predictions???

I'm not convinced about these saving rate figures. They are pretty meaningless because while the overall savings rates is increasing, it could just be that the small proportion of people who do save are saving much more of their income, while those who never save are still doing nothing.

I suspect that is the case, rather than a greater number of people are saving now than before.

bendix

Frugal_Millionairess wrote: »

Here in the U.S. our ABYSMAL savings rates is often attributed to a highly consumer culture. A friend from India has an interesting take on this. She thinks that since America doesn't have a class system, we use money to mirror a class system.

I don't buy this at all. My understanding is that the average UK household had more debt than the average US household. Ergo, we had even less savings than you, despite being a 'class system'.

And why do the Americans insist the US has no class system? Wishful thinking, I believe.

Paul_Herring

Frugal_Millionairess wrote: »

According to financial journalist Rupert Jones, "The sun is shining on Britain's savers." The article says Brits are saving more now than they have in the past five years, and a figure of 92.41 per month was given was given in the article.

Bear in mind that that will be an average that will bear no relation to any one person. A usual example of this is:

You are in a room where 
a table is at 64'F, 
the chair is at 65'F, and 
the oven is at 390'F. 

What is the average temperature of the items?

The same applies to this. If one person is saving £1,000 a month, it takes only 10 people to save nothing to bring this average to £90.90.

I was curious about this as the U.S. savings rate has gone from zero, yes zero, to 6.9% as of May 2009.

So my questions:
1. What percent does the 92.41 per month represent for you?

To me personally? An insignificant amount. I spend (slightly) more that a week on 'going out.' It represents *at most* 6% of what I do actually save per month, and less than 1% of my monthly income.

2. Do you think this higher savings rate will last on either side of the "pond"

Possibly. In general, those that have always saved may save more, those that have picked up the 'savings bug' where they didn't before will probably continue. Those that still aren't saving will continue to not save.

Of course it would take a comparatively few number of people to stop saving and rack up huge amounts of debt to bring the average down again (see above.)

(picked that new term up on these forums)?

It's quite an old term. Derived from that you also have left-pondian and right-pondian.

3. Why do you think the rate has been so low for so many years?

Cheap credit. Why bother saving when you can borrow cheaply?

Here in the U.S. our ABYSMAL savings rates is often attributed to a highly consumer culture. A friend from India has an interesting take on this. She thinks that since America doesn't have a class system, we use money to mirror a class system.

Everyone wants the respect that is accorded to those then who are in the highest economic class. And those who are not really in that class, can just buy the trappings, i.e. the house, designer clothes, Lexus, and then appear to all the world to be at the top of the heap. They are in fact to use a Texas saying, "Big hats, no cattle". They've spent so much creating the illusion of wealth (big hats), that they have no money left to invest (cattle).

I was under the impression that they didn't so much *buy* stuff as *borrow* the money for the stuff (i.e. not only do they now not have the money to invest, they never did to begin with.)

pete80

I would "put money on it" (excuse the pun) that the reason for the savings rate increasing from 0% to 6.9% was to do with American consumers, savers etc waking up over last couple of years as the property values diminished in some States so rapidly and then last year as their 401k pension plans (stock-based ones) took a hammering.

I went to a Trader's Expo in Vegas last November and the visitor numbers were said to be 30% down on previous years, this was backed up by the flow of money into savings accounts and Treasury Bonds after Stock prices lost heavily. One problem with this must be that their losses were crystallised and with poor interest rates of circa 2% on CD's, some investors won't be getting even for some time.

Linton

Another reason the savings rate has gone up is that people do not necessarily reduce their mortgage payments in line with the fall in rates. This leads to a reduction in net debt.

Frugal_Millionairess

I really enjoyed reading your thoughts here. Thanks for sharing.

And Gozomark, thanks for defending my honor and medicated state with the link to the article for the savings rate.;) I did try to post it myself, but got a pop up window saying as a new user I can't put in links.

Bendix, What a great MBA paper topic - are the savers just saving more and that accounts for the greater savings rather than more people saving. Would love to know the real answer there.

I'm not so sure about the class system in America though. There is some of that new money/old money thing going on in the East coast, but in the true midwest (I'm talking Iowa farm communities) throughtout your life you're admonished, "Don't put on airs"; "Don't think you're better than anyone else" and so on, almost a sort of Amish like thinking. And the only ones named "Duchess or Queenie" are the family pets.;) Tell me your thoughts about this class system.

Paul Herring, LOVE the temperature example as a look at averages - may just bandy that around at the next dinner party as we have quite a few "finance" people in our group of friends and they like to trash my liberal arts degrees. I will try to remember to credit you, but after a few glasses of wine, I may just want to look like I came up with that clever example on my own.:beer:

Pete 80 - Did you win big in Vegas?

Linton - Good point about mortgages, they are the one forced savings, i.e. saving grace for many families.

I'm off to dig in the yard and will ponder these great finance truths:cool:

Paul_Herring

Frugal_Millionairess wrote: »

Paul Herring, LOVE the temperature example as a look at averages - may just bandy that around at the next dinner party as we have quite a few "finance" people in our group of friends and they like to trash my liberal arts degrees. I will try to remember to credit you, but after a few glasses of wine, I may just want to look like I came up with that clever example on my own

To be honest I didn't come up with it by myself, just can't remember where I did pick it up. (I did a quick google search at the time of writing, but couldn't find a decent version of it to link, so did that one of the top of my head.)

pete80

Frugal_Millionairess wrote: »

I really enjoyed reading your thoughts here. Thanks for sharing.


Pete 80 - Did you win big in Vegas?

FM

I used to visit the Casino's on my first 6 trips to LV but no slots or Poker for me any more, the odds aren't good enough now I have got used to day trading.

But Vegas is a great place to base yourself for a few driving trips out to Utah, Arizona etc. I wouldn't mind buying a house there now prices have tumbled but that Summer Heat can be a bit much to deal with for us Limeys :cool: