Bottom 80% of US Households Persistently Dissaves-Spending More Than Income
wealtheconomics.substack.com
wealtheconomics.substack.com
> Personal Income isn’t the only source of household assets. The two big missing pieces are holding (capital) gains on assets, and borrowing (which adds both assets and liabilities, in equal amounts, to household balance sheets). Adding these two additional measures does shift most bottom quintiles from spending deficits to asset surpluses in most years.
> While many have suggested that borrowing is what explains households’ ability to keep spending (it is, some), overwhelmingly it’s holding gains that “fund” the perennial dissaving of the bottom 80%.
So this is actually mostly explained by richer people who have significant investments in addition to their normal income.
Edit: The BEA says Personal Income "does not include realized or unrealized capital gains or losses." So if you sell stocks, a house, pull money out of a 401k, none of that is included in Personal Income.
Also, I think like ~20% of Americans are retired? Presumably most of them would be considered dissavers here, except for those who retired with almost no savings and are living solely on Social Security.
Misleading title indeed.
- succinct
- also applied to governments
One clue for future reference - the linked article had to clarify the meaning of the word _in the title_. That strongly indicates to me that, even if in certain areas the word is well understood, the author expected there to be confusion.
> Personal income as defined by BEA differs substantially from adjusted gross income (AGI), the principal income measure used by the Internal Revenue Service.
So it explicitly is not the same as the IRS definition of income.
> For the measurement of personal income, employer contributions to pension plans are counted as part of supplements to wages and salaries. Employee contributions to the plans, capital gains of the plans, and payments of benefits by the plans are not counted as part of personal income.
I believe they consider a 401k to be a defined contribution pension plan. I know normally you wouldn't call a 401k a pension and you wouldn't talk about "payments of benefits" from a 401k, but in context (page 32) I think that is what they mean. So it seems like the amount your employer contributes to your 401k counts as income for that year, any additional voluntary amount you contribute doesn't count, and when you withdraw money that also doesn't count. Maybe I'm misunderstanding but that is my reading.
This makes sense. It’s not about how much you make, it’s about how much you keep. Someone making $5m/year can still spend more than that.
If drawing down on investments counts, I suppose the baby boomers are going to skew this number for years to come as they shift from saving for retirement to spending in retirement.
Americans just have relatively poor savings behavior. They've always had the ability to save much more than they do. I think this partly follows from the reality that the US has not had a genuinely bad economy since the 1930s. It is a long unbroken chain of prosperity with the occasional minor blip, which changes the culture's relationship to money.
Those 15% are on food stamp SNAP benefits.
https://en.wikipedia.org/wiki/Supplemental_Nutrition_Assista...
> "While many have suggested that borrowing is what explains households’ ability to keep spending (it is, some), overwhelmingly it’s holding gains that “fund” the perennial dissaving of the bottom 80%."
Even if I reinterpret "bottom 80%" as "top 80%" and assume we've somehow inverted everybody because it's the rich that would be spending more than their income, as they'd have significant gains … I'm still lost? Do 80% of Americans have investments? The feeling I get talking to people is that most people don't, outside of a 401k, but they wouldn't be spending from the 401k (unless they were in retirement … but that brings us back to 80%).
¹… except 2018, where they got only 7%? … and yeah, that was a bad year…
https://www.census.gov/content/dam/Census/library/publicatio...
A) Marketing efforts aimed at getting people to spend are far better-funded and more effective than those aimed at getting people to save
B) Relentless increases in the cost of living, vs. steady-at-best sources of income, have pushed most Americans into net-spending mode
C) The long-term future is regularly portrayed as being bleak enough that many people have stopped caring much about their long-term solvency
D) All of the above
You're right that a lot of people don't have any kind of investments or houses to sell, and I think most of them are in the 20% here that spends less than their Personal Income.
If there is more money in circulation, but the same amount of goods, of course the price of goods is going to increase.
I keep seeing supply chain shocks in poultry and dairy still, food and fuel prices aren't coming back down, every company I know anyone working for is in the middle of a sales & hiring slowdown and scores of my friends in tech have been out of work six months or more.
Self-fulfilling prophecy.
"Shrinkflation" is a better concept I think, since it implies deception.
Inflation caused prices to go up, but there isn't any drag for them to come down, only to stop increasing AS MUCH. However, at least in the tech market (but as seen in others as well), you often hear "oh the market has softened so we're paying less". Or worse, people are getting laid off. If you haven't moved jobs in the past two/three years, you're at a pre-covid salary rate.
I find it hard to square the circle, where the floor of prices has permanently been moved upwards, employers are pushing salaries down to save their own costs. This causes people to have to "rob Peter to pay Paul". Dissaving, is because workers are being robbed at the expense of employers and capital owners who can seek rents.
In Canada, for example, there are basically only 3 huge grocers (some internationals as well, like Costco and Walmart, but that's only recently). They have been caught price fixing bread, for an example, from 2001 to 2015. I imagine there is much more going on.
I put "Boston MA" into the store selector, and it told me that Lynn MA was the closest. It shows as $4.48/lb for the store brand. The Hormel brand name stuff is $4.98/lb.
Why do you say "definitely"?
All in all a bizarre metric.
Just remember that life savings it a zero sum game: in the end everyone ends up at 0 (there are a few religions that claim you can take it with you - I believe they are wrong, but I guess I can't prove it). If you die with a lot of savings or a lot of debt it doesn't matter - either way you are at 0 the moment you die. If you have savings it goes to someone else. If you have debt someone else just lost money. As such savings is only useful in that it can enable your future life in a rainy day.
Thus I'm not convinced this is bad. Figure out how you will handle old age when you may have medical bills and no ability to earn. You may want to save for a retirement. There are people who retire and discover they miss going to the office so they unretire. You may choose to spend more now when you are young and can enjoy it as opposed to when you are old and your body couldn't go on long hikes. I may choose something different, but I can't really judge.
How is this data different from other data on the same matter? It's not like nobody's known the personal savings rate in the US until today.
It seems to be working, but no better here than it is on the continent and USA, where inflation is already lower.
We are a family of 6. Our grocery budget is consistently between $2500-$3000 a month.
We shop at Aldi.
But as an individual I'm probably spending 500-600/mo between Publix and Food Lion...so it kind of tracks.
Choosing a very high COL area (Westchester), the expected food costs for a family of 6 is 1.7k according to the EPI
Real food? Not 100 boxes of Hamburger Helper with a shelf life of 6 years for $100.
There was another story here this morning that got some discussion about how people are omitting children as a way of finding work-life balance; who can blame them?
edit: other thread https://news.ycombinator.com/item?id=39259093
My family of 4 spends $900 a month, and we do NOT price shop. I live in the metroplitan area of a major city, do NOT shop at discount stores, and even have higher meat bills due to religious reasons. We waste very little, I should add, and buy almost all name brand goods.
I can believe both numbers just based on normal genetic variation.
Remember: If the numbers don’t add up, first check what you’re missing.
If interest rates are defining if a person is saving or not, they are already not saving, and worrying about interest rates when looking at a monthly budget already implies money is being borrowed to make ends meet.
Sure, when interest rates are low that can mean a better mortgage rate, but the response to this should be buying less house, or putting more money down. This might mean spending some more time saving before buying. It doesn’t mean person is forced to spend so much on their mortgage that they can’t afford the other areas of their life.
I didn’t get my first credit card until I was almost 30. I was still buying MacBook Pros, Playstations, iPhones, and TVs in my 20s… but was saving until I had the cash to afford them. And that savings was after contributing to my 401k and keeping a buffer of cash to avoid needing to lean into debt. My thought was, if I can’t pay for it today, what makes me think I’ll be able to make the payments on it next month. It seemed like a risky bet I didn’t want to take.
Obviously there are people who get a bad roll of the dice early in life, but with 80% in this situation, it’s a lot of bad money habits. I’m not saying never buy stuff, just wait and bit and be more selective, especially while young. Save then buy, instead of buying and then paying back. Stuff still gets bought.
Will this mean fewer trillion dollar companies? Perhaps. $1T in spending would be taken off the table vs what’s been done right now. But slower sustainable growth seems like it would be preferable to the exponential growth we’ve seen, and allow companies to focus more on the products and long term health of the company, rather than milking consumers for profit until things collapse in on themselves.
How are people supposed to buy more stuff when 100% of their income is going to pay off old debts and they can’t even afford to make all the minimum payments? Borrowing at 0% interest to make those payments kicks the can down the road and shifts more and more risk to the banks, and that can only last so long, as we saw in 2008. In this scenario, only those saving to buy will still be spending money.
What's "eye-popping" is that it's more effective for economic stimulatory actions to put money in the hands of lower income people, where that money goes right back into circulation providing sales tax revenue at the state level and federal tax revenue at the merchant income level, rather than in the hands of wealthy people / billionaires, where that money sits in an account in the Cayman Islands and does mostly nothing in comparison.
(Keep in mind, the 76k is the absolute top income for the bottom half households.)
americans are so ridiculouosly rich compared to the rest of the world.
probably helps that their govt is expert at continuously inflating the value of their assets with financial stimulus. and also basically forces the rest of the world to use their currency for buying and selling their own productions.
There, corrected it.