Slicing and dicing the U.S. savings rate

The U.S. Bureau of Economic Analysis today released new data on personal income and consumption, including the personal savings rate. The report showed a 0.2 percentage point increase in the personal savings rate to 5.6 percent. The savings rate has been on the increase over the past several years, rising from a rate of about 2.5 percent before the Great Recession.

But this increase comes after a decades-long downward trend in the personal savings rate. The rate in 2007 was about 2.5 percent, compared to 10 percent back in 1979.  The average savings rate fell quite a bit over the past several decades, but is that true across the entire income and wealth spectrum?

The recently released paper on wealth inequality by University of California-Berkeley economist Emmanuel Saez and Gabriel Zucman of the London School of Economics can help us answer this question. The two researchers provide data on savings rates up and down the wealth ladder. For the vast majority of Americans, the savings rate declined between 1979 and 2008. But the differences in the level of the savings rate across the wealth spectrum tell a more nuanced story.

The decline in the savings rate for the bottom 90 percent of families was the most dramatic. In 1979, the savings rate for this group was 7 percent but by 2007, it had dropped to negative 7 percent. In fact, the bottom 90 percent of families had a negative average savings rate from 1998 to 2008, a story that shouldn’t be surprising for anyone who’s heard the term “home equity line of credit.” Since 2008, the savings rate has been zero percent for this group. The savings rate has gone up since the Great Recession and the housing crash, as households paid down debts and were then able to save more.

Further up the wealth ladder, the savings rate for families in the top 10 percent but below the top 1 percent also fell between 1979 and 2007. The level of savings for this group, at 26 percent in 1979 and 13 percent by 2007, was still better than those in the bottom 90 percent, but the top 1 percent fared far better at savings than either group. The wealthiest among us registered a 39 percent savings rate in the late 1970s compared to a 36 percent rate on the eve of the Great Recession. The average savings rate for the top 1 percent was 36 percent on average from 1986 to 2012.

This inequality of savings, according to Saez and Zucman, is a major reason for the increase in wealth inequality since the late 1970s. The incomes of those at the top calcified into wealth while many Americans borrowed to keep afloat. In a perfect world, distributional data like this would arrive alongside the monthly and quarterly aggregate data. But for now, when we see data on savings rate, we have to ask, who’s doing the saving?