The Decline in Saving

A Threat to America's Prosperity?

Longtime Brookings economist and former presidential adviser Barry Bosworth examines why saving rates in the United States have fallen so precipitously over the past quarter century, why the initial consequences were surprisingly benign, and how reduced saving will affect the future well-being of Americans.

The saving of American households underwent an astonishing collapse in the years before the financial crisis as consumers engaged in a long-lived spending binge. More recently, however, that saving rate has risen as households attempt to rebuild their wealth in the aftermath of large stock market and housing losses. It was not only consumers who were guilty of overspending; budget deficits grew as the government borrowed huge sums from the rest of the world. Indeed, over the past three decades, the cumulative external deficit has exceeded $7 trillion, leaving the United States as the world’s largest debtor nation.

Not only does Bosworth contemplate how reduced saving will affect the future wellbeing of Americans, but he also:

  • provides alternative measures of saving,

  • tracks data on household saving decline,

  • compares international saving patterns, and

  • discusses consequences of low saving.
The Decline in Saving provides an extensive and unparalleled account of the complexity of present saving patterns, an issue made even more serious by the 2008–09 global economic and financial crises. It objectively examines saving at both the individual household and the aggregate economy levels to understand whether the U.S. decline in saving is truly a threat to American prosperity.

Highlights from The Decline in Saving:

"The magnitude of the two-decade-long fall in household saving has been truly astonishing; it is even more surprising in view of the fact that the large cohort of baby boomers should have been in their peak saving years."

"If Americans save so little, why are they so rich? This divergence emerges because the conventional measure of saving excludes all forms of capital gains . . . ."

"Saving behavior appears to be influenced in important ways by country-specific institutional factors along with a few common determinants, such as income growth, demographic changes, and variations in private wealth."

"In the aggregate, the United States has had a negative net national saving rate since the onset of the financial crisis, and it now relies on foreign resource inflows to finance all its capital accumulation and a portion of its consumption."

"The optimistic projections of just a few years ago about the future well-being of retirees now seem seriously dated."

Barry P. Bosworth's previous Brookings books include Saving and Investment in a Global Economy; Productivity in the U.S. Services Sector, written with Jack Triplett; and The Economy of Puerto Rico, coedited with Miguel A. Soto-Class and Susan Collins.