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Spending outpaces rate of savings

For the second year in a row, American consumers spent more than they earned.

Published February 2, 2007

[Times file photo]
St. Petersburg residents flood Central National Bank in 1931 during the Great Depression.

Americans spent more than their incomes last year, pushing the personal savings rate down to the lowest level since the Great Depression, the government said Thursday. And the trend isn't good: the -1 percent savings rate for 2006 was worse than the -0.4 percent rate recorded in 2005.

There were only two other years of negative savings in government records: the Depression-era years of 1932 and 1933.

The Commerce Department calculates the personal savings rate by subtracting spending from after-tax income. When spending exceeds income, the difference comes from borrowing or dipping into savings.

For many Americans the bottom line is that incomes haven't kept up with rising costs. When that happens, savings are the first thing to go.

"It's hard to save, especially if you're a homeowner with insurance, maintenance, upkeep and property taxes" said Debra Curry, 46, of St. Petersburg. "As soon as you've saved a little bit, something comes along." She said she's thankful for her company's 401k retirement savings plan because that's her only savings.

University of South Florida student Tara Coffman, 24, says she does odd jobs while going to school full time and relies on credit cards and student loans to stay afloat.

"I don't even have $100 in my savings account," said Coffman, who lives in Tarpon Springs. "I'm buried in student loans."

For Americans living paycheck to paycheck, the loss of a job or a medical crisis often triggers a big increase in debt.

Katherine Davis, 24, of Dade City said that after her husband lost his job, they quickly ran through their meager savings and lived on credit cards, racking up $10,000 in debt.

"My husband has a good job now with Coca-Cola, but I can't tell you when things will turn around for us," said Davis, a stay-at-home mom with a 22-month-old daughter.

Cindy Cheek Cartelli, 45, of Gulfport said medical bills pushed her into bankruptcy three years ago and health problems now prevent her from working more than a few hours a week. "It's tough to get your living expenses down," she said. "The majority of my friends have trouble making ends meet and have very little if any savings."

However, some economists say that the savings picture is not quite as grim as it appears at first glance. Wealth isn't a factor in the savings equation except to the extent that it produces dividend and interest payments or rental income.

The increased value of a stock portfolio and the capital gains from the sale of a stock are not counted as personal income. If income and outgo are balanced, someone who sells stock to buy a car becomes a negative spender. The increase in home values, which has made Americans feel wealthier, doesn't count as personal income either. Borrowing against home equity has become a popular way to finance spending.

As the retiree population grows, it's natural for the U.S. personal savings rate to fall. Income usually declines in retirement and many retirees tap their savings to pay living expenses. But to tap those savings, you first have to accumulate them and that worries some economists.

"These low savings levels are coming right as baby boomers are starting to retire," said David Wyss, chief economist at Standard & Poor's in New York.

The savings statistics mask the fact that there are many successful savers. Carlos Bouslimi, 27, of St. Petersburg said he found it difficult to save when he was single, but getting married and setting financial goals changed everything. "We both determined we wanted to have a better life," he said. "I track my spending daily. At the end of the month, if I spent more than I made, I question where the leak came from and try to fix it."

Wayne Proctor, 60, of Belleair said the current generation has an advantage with better ways to save.

"The rate of return on a 401(k) or a mutual fund is 10 times better than a traditional savings account," he said. "Our mothers and fathers saved in Christmas clubs. People don't know what those are now."

Times staff writer Tom Zucco contributed to this report. Helen Huntley can be reached at or (727) 893-8230.

[Last modified February 2, 2007, 02:00:59]

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