Today we hear about the savings rate. Actually, what we hear about is the growth in personal income and personal consumption. The difference is assumed to be savings. And a whole host of scolds will tell us that we’re just not saving enough.
Earlier I mentioned how the “Great Moderation” has improved our economic security. Another factor in the low savings rate in the US is the high rate of homeownership here.
By convention, my entire mortgage payment is considered to be spending, even though a large portion of that payment may go to pay the loan’s principal. As ownership has risen in the US, more and more people are building equity in their homes. But this trend isn’t captured.
I don’t want to bore you with the numbers. But it’s curious that countries where more people rent their residences have higher savings rates. While real estate may no longer be considered a fool-proof investment, it should still count for something. The scolds just don’t seem to get that.
Douglas R. Tengdin, CFA
Chief Investment Officer
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