Saving rate is estimated by subtracting household expenses from disposable income.
Disposable income is income from employment and personal businesses, plus interest, dividends and government benefits -- minus any income taxes and social security withholding.
Household expenses are cash spent on consumer goods and services and rent (or cost of a home).
Because saving is a remainder calculated by subtracting expenses from income (both of which are estimates) savings estimates are relatively inaccurate.
Household saving rates vary between countries - partly due to differences in how health care, unemployment and retirement are handled in each country. The older the population, the less money is saved. Retired people are not growing their savings, but depleting them.
Saving rates have been stable or rising in Austria, France, Italy, Norway and Portugal. They have been falling in most other countries, such as Australia, Canada, Japan, the United Kingdom and the United States (until very recently).
Some countries have Negative Saving Rates – which means current household expenses exceed their income. This group includes countries like Australia, Denmark, Greece and New Zealand.
Who cares about this? The Organisation for Economic Co-operation and Development cares. This group compares statistics across the most developed countries (the G7). In a fascinating research paper released this week, they found savings rates change due to these factors:
- Interest rates go up – savings in most countries increase (except in the UK and US!)
- Inflation increases – savings go up 1.4-1.8 times as much as the reported inflation rate change
- Government debt increases – savings go up slightly in the US and France (fear for the future?)
- Unemployment increases – savings change inconsistently; withdrawals by the unemployed are sometimes but not always offset by increased savings of those who fear losing their jobs
- Housing prices increase – the savings rate may decrease as house prices get higher (US, France, Italy, UK) but in most other countries this does not happen
- Stock ownership increases – as families buy more stocks they save less and they risk losing those investments (in 2000, households in OECD countries had 17% of a year's income in stock markets)
We are saving more for a rainy day. Are we convinced the rainy day is here? If I knew that, I probably wouldn't be writing math textbooks for a living ...