U.S. Savings Rate

Published: 2021-06-29 06:57:18
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Category: Business

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U.S Savings Rate 1












U.S. Savings Rate: meaning, measurement, significance

Chris Walker

Texas A & M University




























U.S Savings Rate 2

Abstract

The savings rate in the United States is a closely watched statistic. During the

years when the savings rate was low, it was a common theme that our society was "living

on credit" and that it was only a matter of time before we were plunged into a recession.

As we all know, that is exactly what eventually did happen. Most people believe that the

higher the savings rate, the better the state of the economy. However, that is not always

the case. This paper will take a closer look at how the savings rate is determined and

examine what this rate really does tell us about the state of the economy.





























3

Introduction

The savings rate is among the most studied macroeconomic aggregates, indicating

its importance for understanding a wide range of economic phenomena. How much we

as a society choose to save today for consumption at a later date has important

implications for the welfare of the elderly as well as economic growth and consumption

levels.

According to the "life-cycle model of savings", people save when young in order

to finance consumption during retirement (Bloom, 2003). This model of savings suggests

that in an ideal environment, people strive to achieve a target ratio of net worth to income

that will allow them to maintain their desired consumption patterns throughout their

retirement years. (Skinner, 2007). This model also maintains that if unexpected events,

such as drops in the prices of houses or stocks, causes net worth to decline, then the life-

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