Why Don’t Americans Save?

August 10, 2004

This paper is a preliminary report on an examination of the decline in the household saving rate over the past two decades from both the macroeconomic and microeconomic perspectives. At the aggregate level, it is noteworthy that about 40 percent of the fall in the household saving rate is within the contractual retirement accounts, and that much of the drop in discretionary saving occurred prior to the sharp rise in equity and home values in the late 1990s. The paper also examines the magnitude of other potential explanations, such as the drop in inflation, capital gains on wealth and an alternative treatment of consumer durables as investment.

The microeconomic section explores the feasibility of using information from successive Surveys of Consumer Finances (SCF) to follow the wealth accumulation of specific age cohorts over the period of most dramatic change in the aggregate saving rate. For many components of wealth, the surveys are very similar to the corresponding aggregates of the flow of funds accounts (FFAs), but there are substantial discrepancies for corporate equities. The discrepancies in the nominal wealth are magnified when the two estimates are adjusted for capital gains, yielding substantially different estimates of household saving. The paper reports on some preliminary efforts to benchmark the SCF to the FFAs, using the distributional information of the SCF to provide an added dimension to the FFA data.