personal savings rate negative; 1st time since depression

[brianold]

i know for myself alot of reason why i have yet to open a retirement account, etc is because i want to invest my money in ways and places that are not harmful to others. i took my money out of my mutual fund because they had money in "defense" contractors, etc... and i'd rather have my money going to buy a house or something than building missiles. is that just me?


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Ending negative savings

04/09/2006

americans' interest in saving may be sinking to new lows.

Last year, a growing economy gave many U.S. families a shot to sock away cash. Fewer did.

For the first time since the Great Depression, the personal savings rate was negative. At the same time, more families went into debt and fewer had retirement plans.

Two questions seem to confound experts about this trend: First, why don't we save? And second, how much should we care?

"I definitely think it's a problem," said Jack White, a financial adviser and instructor at the University of Missouri at St. Louis. "I think a lot of people aren't saving simply because they don't know what they should be saving for."

Instead of setting goals, they fall into a common trap fostered by a spend-first culture, the increasing ease of borrowing money and a housing boom that's made many U.S. families feel wealthy.

And experts say those who should care the most may be fretting the least. They predict a future where retirees will work well past the age 65, not by choice but necessity, and often in less than desirable jobs.

Here's what this means for you: Avoiding that fate can be as simple as having a plan, knowing why you're saving and deciding how much you'll need in the future.

An easy first step toward saving is departing from the view that the government, your company or someone else is going to take care of you, said Eric Park, president of Steamboat Financial Group Inc. in Washington, Mo.

The next is to create goals and set a structured strategy. But even if that fails, advisers recommend a simple, default rule of thumb: Save 10 percent of what you make.

For many families, all of this advice fell on deaf ears in 2005. Last year's national personal savings rate of -0.4 percent marked only the third time that the annual rate was negative. The other two years were in the midst of the Depression.

Economists find some flaws with the calculation of the savings rate and say its fall below zero is misleading. For example, the figure doesn't consider capital gains.

But they agree on this: It clearly raises red flags about a trend that's been worsening for years.

"I think what it says is that we're more inclined to immediate gratification," said Steven Fazzari, an economist at Washington University. "We're in this transition from the people who grew up during the Depression to the baby boomers who are less frugal."

In a recent Federal Reserve survey, only four of 10 families reported that they saved regularly. In the same survey, performed in 2004, the percentage of people who saved in the previous year dropped 3 percentage points to 56.1 percent.

In addition, the number of workers with retirement accounts fell while the number of families in debt rose from 2001.

Park said the trend is especially problematic at a time when 78 million baby boomers approach retirement. Compounding the issue is the disappearance of pension plans and the uncertain status of Social Security, he said.

"We're transitioning away from a time when everybody's hands were held until Sunday," Park said.

"The thing that distresses me the most is that people don't have a plan."

Park says he would find it more palatable if the people who aren't saving were saying, "I've decided not to save. I'll just be a greeter at Wal-Mart during retirement."

When a new client walks in, the first thing White does is talk about goals.

The idea of saving money, he says, is one that interests few people. But the idea of taking an extra vacation each year, buying a second home or leaving a mediocre job five years earlier than expected is a better motivator.

Having a non-numeric goal can provide the needed motivation to stick with a savings plan as well as helping to come up with that desired savings figure.

Today, the innumerable number of retirement calculators available on sites like Van-guard.com make it easy to come up with some sort of annual or monthly savings amount.

As old-fashioned and as much as it sounds like a cliché, Park, White and others still endorse the 10 percent rule of thumb.

"My personal opinion is a minimum of 10 percent, but the more the merrier," said Doug Siebert, the owner of Siebert Investment Advisory Services LLC in Des Peres. "I've never had someone retire and say, 'That's just too much money. I should just give some back.' ."…."…. I love to see people save 15 percent."

The trick then is to stick with a plan. That may be the hardest part. Siebert advises systematic investing, in particular stashing an amount into your company's 401(k) that's greater than just the minimum required for the company's match.

"The problem is, we have a view that we don't have responsibility for anything. If the government doesn't do it, our company will. If the company doesn't, our parents will," Siebert said. "We're our own first enemy."

eheisler@post-dispatch.com | 314-340-8183

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