Save, People!

The headline to this AP article made me cringe. "Savings Rate at Lowest Level Since 1933". What was worse were the details in the article.

The Commerce Department said Monday that consumer spending rose by 0.9 percent in December, more than double the 0.4 percent rise in incomes.

Basically, that means for every $1 in additional income for the average consumer, they spent $2.25 in December. Wow, simply wow. Spending has been outstripping income for a few years now as consumers sucked their home equities dry to buy the biggest SUV they could find. But to have spending outstrip income by more than double, while home re-fis are dropping like a rock due to increased interest rates, means that consumers are coming up with a new way to pay for their spending. I'm guessing we'll see the level of credit card debt boom in December along with this measure of increased spending.

Consumers went on such a binge in December that it pushed the yearly savings rate to -0.5%. The only other times in history that the annual savings rate has been negative were 1932 and 1933, at the height of the Great Depression where a quarter of all Americans were unemployed.

What does all this mean in plain English?

A negative savings rate means that Americans spent all their disposable income, the amount left over after paying taxes, and dipped into their past savings to finance their purchases.

*shudder* This measure includes retirement savings. So, if someone has 3% going into a 401(k) plan, they spent any increase in income *plus* another 3.5% of income in 2005.

There are only two ways to build wealth, save or win the lottery. As Americans we're not saving, so we best win the lottery soon. And there aren't enough lotteries to go around.