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How Do Americans Save Money?

How Americans save money

How Do Americans Save Money?

A Closer look at Savings: How Americans Spend Their Paycheck

Personal savings equal disposable income minus personal consumption expenditure. In other words, income that is not consumed by immediately buying goods and services is saved.

Saving Vs. Savings

Saving and savings are not the same thing. Saving is an increase in one’s assets, an increase in net worth. It’ is an activity occurring over time, a flow variable. Savings is one part of one’s assets, usually deposits in savings accounts or to all of one’s assets. It’'s something that exists at any one time. It’'s also a stock variable.

Disposable Income

Disposable income is the amount of money that households have available for spending and saving after income taxes have been accounted for. Disposable personal income is often monitored as one of the many key economic indicators used to gauge the overall state of the economy.

An easy way to think of it is personal income minus personal income tax payments. For example, let’'s assume your household personal income includes $100,000 from salaries, and you are paying at the 35 percent tax rate. Your household’'s disposable income would then be $65,000 ($100,000 minus $35,000).

Confidence, Sentiment and Saving

Confidence

The U.S. Consumer Confidence Index (CCI) is an indicator designed to measure consumer confidence, which s defined as the degree of optimism on the state of the economy that consumers are expressing through their activities of saving and spending.

The CCI was started in 1967 and is benchmarked to 1985 = 100. This year was chosen because it was neither a peak nor a trough. The index is calculated each month on the basis of a household survey of consumers’ opinions on current conditions and future expectations of the economy. Opinions on current conditions make up 40 percent of the index, with expectations of future conditions comprising the remaining 60 percent.

Sentiment

The University of Michigan Consumer Sentiment Index (CSI) is a consumer confidence index published monthly by the University of Michigan. The index is normalized to have a value of 100 in December 1964.

The Index was created and is published with the following objectives:

  • Near-time assessment of consumer attitudes on the business climate, personal finance and spending
  • To create capability for understanding and forecasting changes in the national economy
  • To provide means to directly incorporate empirical measures of consumer expectations into models of spending and saving behavior
  • To forecast the economic expectations and the future spending behavior of the consumer
  • To judge the level of optimism/pessimism in the consumer’'s mind

Saving

The U.S. Department of Commerce Bureau of Economic Analysis defines personal savings as personal income less the sum of personal outlays and personal current taxes.

Saving Rate vs. Confidence Index

The savings rate in 2000 was 97 and the confidence index was 145. In 2001, the savings rate was 90 and the confidence index was 105. In 2002, the savings rate was 125 and the confidence index was 100. In 2003, the savings rate was 125 and the confidence index was 85. In 2004, the savings rate was 125 and the confidence index was 100. In 2005, the savings rate was 15 and the confidence index was 105.

In 2006, the savings rate was 107 and the confidence index was 105. In 2007, the savings rate was 48 and the confidence index was 103. In 2008, the savings rate was 90 and the confidence index was 65. In 2009, the savings rate was 160 and the confidence index was 60. In 2010, the savings rate was 140 and the confidence index was 65.

Saving Rate vs. Sentiment Index

In 2000, the sentiment index was 105, and the saving rate was 98. In 2001, the sentiment index was 92, and the saving rate was 90. In 2002, the sentiment index was 95, and the saving rate was 125. In 2003, the sentiment index was 95, and the saving rate was 123. In 2004, the sentiment index was 100, and the saving rate was 120. In 2005, the sentiment index was 95, and the saving rate was 20.

In 2006, the sentiment index was 90, and the saving rate was 80. In 2007, the sentiment index was 90, and the saving rate was 50. In 2008, the sentiment index was 65, and the saving rate was 90. In 2009, the sentiment index was 75, and the saving rate was 160. In 2010, the sentiment index was 80, and the saving rate was 135.