As you’ve likely noticed, the personal saving rate comes up quite a bit in financial commentary and economic news. However, it’s not always clear what it truly means as a metric, especially when it comes to individuals or overall economic impact.
In this comprehensive introduction, we’ll go over what the U.S. savings rate is really all about, as well as how it factors into smart financial planning for the future. We’ll cover how it’s calculated and why economic indicators like these matter in the first place, as well.
What Is the Personal Saving Rate?
The personal savings rate is a percentage that reflects how much of a population’s collective disposable income is saved rather than spent. In other words, it tells us what portion of each dollar earned (after taxes) is set aside instead of used to cover everyday consumption.
As a metric, the personal savings rate lends insight into the average household’s typical financial behavior. A higher rate generally indicates careful spending and greater financial security. Meanwhile, a lower rate can often mean people are forced to use more of their income to cover basics due to rising costs, stagnating wages, and similar factors.
What is the current U.S. saving rate?
As of the end of 2024, the current national saving rate is 3.8 percent. But what does that actually say about the state of personal finance across the nation?
This particular number represents a notable decline compared to pandemic-era savings rates that rose into the double digits, thanks to stimulus efforts, reduced opportunity to spend, etc. However, while 3.8 percent isn’t unheard of, historically speaking, this number does reflect fewer overall savings behaviors.
Broader economic factors, like inflation and a steadily rising cost of living, likely factor into the mix for most households.
How Is the U.S. Personal Savings Rate Calculated?
So, how do economists actually arrive at a particular savings rate number? Here’s a step-by-step overview of how it works.
1. Calculating disposable personal income
The term “disposable personal income” refers to the amount of money people have left after all applicable taxes are covered. It’s the money that’s actually available to them to spend or save as they see fit in the first place.
Income streams contributing to disposable personal income include (but may not be limited to) investment income, government benefits, and other forms of passive income, in addition to standard wages.
2. Estimating personal savings
Once we establish total disposable personal income, we next need to subtract personal outlay expenses. These include necessary life expenses like rent, food, and transportation costs. However, they also include loan payments and other consumption-related costs. What’s left after these subtractions can effectively be considered savings.
3. Calculating the saving rate
In the last step, we divide the amount of savings by the total amount of disposable income we started with. The result is the percentage metric so often cited in economic reports and commentary.
Complexities Economists Face
Naturally, the personal saving rate is easily affected by a variety of economic and emotional variables. Here are a few examples:
- Surges in consumption confidence can trigger widespread periods of freer spending, lowering the saving rate.
- During recessions and other crises (e.g., the COVID pandemic), people protect themselves by scaling back on spending.
- Government policies, interest rates, and inflation rates can all affect individual choices as far as how much to spend versus save.
- Rising costs of living combined with wage stagnation can force people to spend more just to stay afloat.
In other words, this is a metric easily affected by facts, feelings, and everything in between. As a result, it can serve as a potential insight into the nation’s collective mood.
How does the personal savings rate affect the economy?
Although the saving rate may appear to be just one more statistic on the surface, it carries implications that can’t help but echo throughout the economy. When the saving rate sends a particular message, individual households tend to follow suit.
If people see the saving rate rising, they’re less likely to spend money themselves regardless of their situation, which can slow economic growth. Meanwhile, a falling rate can trigger spending and raise the overall demand for goods and services, stimulating the economy in the process.
However, when the U.S. savings rate stays consistently low for a long time, it’s a likely sign of widespread financial instability. People, in general, may be struggling to build household savings and plan for the future, leaving them increasingly vulnerable to economic shifts.
Navigating Personal Saving Rates for Better Financial Decisions
Although national statistics like the U.S. savings rate can provide valuable insight into widespread economic trends, it’s important to remember that they don’t reflect your personal financial story. Your own goals may require you to strike a much different balance between saving and spending.
A professional financial advisor can help you put together a smart financial planning strategy based on where you fit into the larger picture. It’s all about making informed decisions that center on your unique values and circumstances.
Ready to step into a financial future that serves your long-term wealth-building goals? Get in touch with a MyStages® representative today to schedule a consultation.
