It's as though Charles Dickens was looking at monetary savings levels in the U.S. when he penned, "It was the best of times, it was the worst of times," as the opening line of "A Tale of Two Cities."
One view of the current savings levels is of a nation breaking into its collective piggy bank at a record rate.
But at the same time statistics show the nation's banks bulging at the seams with record amounts of cash socked away by everyday consumers.
While the nation's savings rate did dip into the negative region in 2005 for the first time since the Great Depression, economists say statistics tell only part of the story.
Given this dichotomy of a negative savings rate and a record amount of cash in consumers' bank accounts, economists say it would be hasty to assume America's consumers are all sailing recklessly into the future with no protection from potentially rough financial seas.
Part of the disconnect between the two
statistics stems from the difference between what comes
to the typical consumers' minds when they hear the word
"savings" and precisely what economists are
measuring, says Keith Leggett, senior economist for
the American Bankers Association.
When typical consumers hear "savings,"
more often than not they think about the portion of
money stowed away for safekeeping in a bank or investment
account. But to an economist, that emergency cash is
not savings, but instead is considered "wealth."
"As an economist, we see savings as the absence of consumption. Wealth is the accumulation of assets," Leggett says.
By many measures, even with a falling savings rate, U.S. consumers are wealthier than they have ever been.
What the statistics say
The official definition of what an economist calls "savings,"
according to the federal Bureau of Economic Analysis,
or BEA, is "disposable personal income less personal
In other words, add up everyone's after-tax
income and subtract everyone's expenses. The amount
leftover is the national savings rate.
According to the BEA, the national annual savings rate fell in 2005 to its lowest point since the Great Depression: negative 0.4 percent. Since then, it has continued to fall, registering at negative 1.6 percent in May 2006 and negative 1.5 percent in June. Compare those numbers with 1985 when the national savings rate hit a record 11.1 percent and it is clear why economists are raising the warning flag.
But at the same time, Federal Deposit
Insurance Corp., or FDIC, records show that American
banks have more cash in their vaults than at any other
point in recent history -- with $6.4 trillion deposited
in the domestic offices of U.S. banks as of June. Of
that $6.4 trillion, $5.23 trillion was in some type
of interest-bearing account, such as a money market
account, savings account or certificate of deposit,
says Ross Waldrop, senior banking analyst for the FDIC.
That's up $500 billion from June 2005.
And while the FDIC statistics don't differentiate between corporate deposits and personal deposits, or between foreign account holders and domestic savers, it's clear that American households aren't all devoid of cash reserves, Waldrop says.