[lbo-talk] Question about savings

Seth Ackerman sethia at speakeasy.net
Fri Feb 11 23:40:53 PST 2005


From: "Lou Johnson" <loujohnson705 at yahoo.com>


> "Sounds like well-off people in your town are spending
> a lot, rather than saving."
>
> Well, this is part of my question - what do economists
> mean when they talk about "savings"? Functionally,
> what upper-middle class people here seem to be doing
> with their extra money is "saving" - mainly, they're
> trying to accumulate for retirement. But what they're
> putting their money into is 401Ks, stocks, bonds,
> financial deals that I don't really understand, and
> land/property - which maybe aren't traditional
> "savings" vehicles. And they see to have a lot of
> money to put into these things - and do a fair amount
> of conspicious consumption as well.
>
> Meanwhile, everything else is going to hell.
>
> And on the national scale, when I read things like:
> "1% of the population holds 40% of all assets" - gad,
> to me that seems like a lotta "savings."
>
> But I fear I am misunderstanding what economists mean
> when they use the word.

No, you've got the right idea. 401k's, stocks and bonds are all counted as savings in macroeconomic terms. Definitely rich people have a lot of savings compared to others, but they're not as much as they used to or as much as in other countries. One of the Fed banks did a study during the stock market boom showing that the decline in savings among the top 20% made up the bulk of the overall decline in saving. They attributed it to the boom, which inflated people's paper wealth and made them less likely to save. That's probably still going on, except now because of inflated real estate wealth instead of stocks. The short answer is yes, rich people (along with everyone else) are saving much less than they used to and this is why we have an overall savings deficit.

Seth



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