The Saving Mystery, or Where Did the Money Go?

by Lynn Elaine Browne with Joshua Gleason
September/October1996

Of great concern and puzzlement to many has been the decline in the U.S. personal saving rate. From 8 percent of personal income 20 years ago, saving has fallen to less than 4 percent. This is a matter of concern because saving and investment are closely linked, and investment is believed critical to productivity gains and a rising standard of living. The decline in saving is also a source of puzzlement because it runs counter to many people's perception of what is happening.

This article investigates the decline in saving, focusing on "where the money went." The authors find that rising expenditures on medical services are absorbing a growing fraction of income. Thus, the saving problem is not about thrift versus profligacy, but rather a competition between more and better medical care, on the one hand, and more investment, on the other. They point out that efforts to stimulate saving are only one way to increase the economy's productive capacity, and that the ultimate goal is higher standards of living.

Full-text article pdf

 

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