JUST IN CASE YOU WERE THINKING OF SELLING PENCILS ON STREET CORNERS:

2006 personal savings drop to 74-yr. low (MARTIN CRUTSINGER, 2/01/07, AP)

People once again spent everything they made and then some last year, pushing the personal savings rate to the lowest level since the Great Depression more than seven decades ago. [...]

The savings rate has been negative for an entire year only four times in history -- in 2005 and 2006 and in 1933 and 1932. However, the reasons for the decline in the savings rate were vastly different during the two periods.

During the Great Depression when one-fourth of the labor force was without a job, people dipped into savings in an effort to meet the basic necessities of shelter and clothing.

Economists have put forward various reasons to explain the current lack of savings. These range from a feeling on the part of some people that they do not need to save because of the run-up in their investments such as homes and stock portfolios to an effort by many middle-class wage earners to maintain their current lifestyles even though their wage gains have been depressed by the effects of global competition.

Whatever the reason for the low savings, economists warn that it the phenomenon exists at a particularly bad time with 78 million baby boomers approaching retirement age. Instead of building up savings to use during retirement, baby boomers are continuing to spend all their earnings.

The savings rate is computed by taking the amount of personal income left after taxes are paid, an amount known as disposable income and subtracting the amount of spending. Since the figure has dipped into negative territory, it means consumers are spending all of disposable income and then some.

As Business Week rather more sensibly explains:

Wealth gains have been a key reason why consumers have allowed their savings to dwindle to record lows in relation to income. Increased wealth has been a substitute for traditional savings. That trend was clearly in evidence through the third quarter of 2006, as the Federal Reserve reported a $776 billion rise in household net worth--comprising all assets minus liabilities--from the second quarter, to a record $54.1 trillion.

Ans, as their Michael Mandel noted last year:

In 2005, real net worth per capita was $155.1 thousand, compared to $148.9 thousand in 2004 and $153.4 thousand in 1999 (all in 2005 dollars).

Real net worth per capita is household net worth, minus credit market liabilities of federal state and local governments, adjusted for inflation and population growth.

Perhaps folks who are worth $155k a head can be forgiven for not dropping pennies into their passbook savings accounts?

Posted by Orrin Judd at February 1, 2007 8:43 PM