The Secret Savings Accounts of Smart Americans

We have all heard the news (unless you live under a very big rock) that we are not saving enough, not saving for retirement, not saving for emergencies, and that generally, America and Americans are teetering on the verge of bankruptcy. I’m here to tell you that the evidence for this just doesn’t add up. Americans are saving at record rates, have tremendous assets put away for a rainy day and most are far from bankruptcy. Sorry to disappoint all you fearmongers and nay-sayers out there but the numbers you’ve been fed (and fed to us) have been rigged. How could this be you ask? Well, the way the government measures savings is directly at fault.

The government’s numbers are calculated like this:

“Personal savings rate is calculated by subtracting the amount of spending from the amount of after-tax income. A negative savings rate means that consumers are spending more money than they have. The personal savings rate does not account for any money gained through investments or assets.” (nuwireinvestor, ’08)

There is a large pool of U.S. savings that does not show up in the statistics. The smarter and more knowledgeable our average citizens have become, and the more sophisticated they get, the more choices they have and the more they continue to save. And the less their ‘real’ savings show up in statistics. Here are some of the ways that everyday people across America are quietly saving a fortune:

1) According to some economists Americans may have as much as 100 Billion dollars in currency quietly tucked away. This is the currency that has been printed but no longer shows up in currency circulation metrics…this makes up approximately 20% of the currency available, where has it gone? It has gone into savings. This method of savings, many people keeping their cash in envelopes stuffed in a drawer for a rainy day used to be a common way to save, some people just don’t trust banks (and with the recent events in the first half of 2008…can you blame them?)

2) Almost 60% of Americans own their own home, and while the value of their equity may rise and fall, the value of their home equity is not measured in the aggregate savings statistics.

3) According to sales data kept by large commercial coin trading companies Americans own more gold, silver, and precious metal coins than any other nation (with the possible exceptions of Germany and Switzerland). Naturally, these assets aren’t recognized as savings either.

4) Social Security isn’t counted. 15% of an individual’s wages (or a half-and-half match for those of us employed by large companies) go into Social Security payments all of which are (hopefully) set aside for retirement. It takes 40 quarters of credit to qualify for Social Security at retirement age, among other things. With the average US wage hovering around $36,000 a year, this averages out to $5400 per working year times the number of years a person works, usually about 40, which is $216,000 in contributions per worker before any gains are added on by investment.

5) Isn’t that 15% mandatory deduction another source of savings? Why isn’t it counted in the savings rate?

6) Stock investment. By conservative estimates, 50% of Americans are currently invested in the stock market. But the aggregate of their investment is not included in the government’s measure of savings. Neither are tax-deferred retirement plans like Roth and Traditional IRAs, pension plans, profit-sharing plans, 401Ks, medical savings accounts, 403 b7s, and a plethora of other retirement account types that would look like savings to any rational individual. $5.8 trillion in retirement assets are in the hands of American workers, retirees, and their families and are held in benefit plans. These are huge amounts of invested money and are also excluded from the government savings statistics.

7) Money Market Funds: By most estimates aggregate total cash parked in Taxable MMFs is between 3 and 3.5 trillion dollars…and guess what, nope these aren’t counted either. They are considered investing along with retirement plans. So just what is being counted in the statistics? I know that the Money Market Fund I am invested in has hundreds of billions of dollars in it…that money is what I call my savings and represents about 3 months’ living expenses or over 10% of my gross income. I put money in there most months, I consider it savings, my ’emergency’ savings…why isn’t it being counted?