Low Personal Savings Rate in the United States

SAVINGS IN THE UNITED STATES

Saving by individuals occurs when current disposable income (personal income after taxes) exceeds current consumption expenditures.3 Over the past 50 years or so, the personal savings rate in the US has been substantially lower than that of other industrialized countries. A part of the reason for the lower personal saving rate in the US is the result of an American behavior characteristic, which pursues immediate gratification. Another part of the reason, however, is federal government policy, which has, for the most part, been designed to stimulate consumption rather than saving.4

Data pertaining to the personal saving rate and to real per capita personal disposable income in the US for the 19761988 time period are presented in Table 1, which may be found on the following page. As the data presented in the table indicate, the personal saving rat

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5.8 9,725 1983 5.5 9,942 1984 6.5 10,412 1985 4.6 10,483 1986 3.9 10,786 1987 3.8 11,000 1988 3.7 11,218 Sources: (1) Council of Economic Advisers. Economic Indicators (July 1989) and (February 1984). (2) Council of Economic Advisers. Economic Indicators (July 1989) and (February 1984). ============================================================= 4 longterm impact on individual consumption. As home ownership is one form of saving, however, there may also be a nagative longterm impact on personal saving. TAXATION'S EFFECTS ON PERSONAL SAVINGS High marginal federal income tax rates on ordinary income, together with congressionally provided opportunities to avoid the taxation of some income as ordinary income, created an environment in which
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