Why has the US savings rate declined as the fraction of income going to the top 20% increased?

Question

I thought that higher income people saved a larger percentage of their income so I would have expected the national savings rate to increase with the growing income inequality.

This savings rates have been declining since the late 1970's so the reason can not be the current housing bubble.

Answer 1

People are spending more on insurance now than in the 1970s.
Money used to pay for insurance is not defined as savings but it can serve the same defensive purposes.

Many people have taken out mortgages for houses that they can barely afford.
This benefits the real estate developers and real estate agents and banks that give out the loans.
Money used to pay mortgages is not defined as savings.

If more poor people would save and invest their money there would be less income inequality.

From 1975 to 2005, the average size of new single-family homes grew 48 percent, according to the U.S. Census Bureau's 2005 survey of new housing. That happened even as the typical household has gotten smaller, falling from 2.94 people in 1975 to 2.6 people in 2004, the latest figure available.

At the same time, the lots that the houses stand on have shrunk about 13 percent.

"Americans generally seem to like to supersize everything, whether it's houses or cars or TV sets or hamburgers," says John McIlwain, senior fellow for housing at the Urban Land Institute, a Washington-based research group largely financed by the real estate development industry. "So if you can afford it, more people will buy bigger even if you don't need it."

We Americans seem to be in the process of becoming wildly overhoused. Since 1970 the size of the average home has increased 55 percent (to 2,330 square feet), while the size of the average family has decreased 13 percent. Especially among the upper crust, homes have more space and fewer people. We now have rooms specialized by appliances (home computers, entertainment systems and exercise equipment) and -- who knows? -- may soon reserve them for pets. The long-term consequences of this housing extravaganza are unclear, but they may include the overuse of energy and, ironically, a drain on homeowners' wealth.

Answer 2

First only the top 20% of people here in the US income increased. The savings rate has to do with the US as a whole which would includes everyone. The US savings rate has declined because the rest of us are not being paid at the same rate as as the cost of living increases. For example, 40,000 today would not go as far as it would have 20 yrs ago or a generation ago. That is why you see a trend of many people in their late 20's and 30's either still living at home or moving back in with their parents because they can't afford it on their own. If what you are being paid barely covers your expenses then it is difficult to save. Also, savings is not seen as a priority anymore, we are a culture of instant gratification so much of the time your money is spent for the things that you want or need now and not put away for a rainy day.

It should be noted that those who make more also have more bills to pay. So if a person were making 200,000 a year they have much more than most but not an endless supply of money so they may have a hard time saving as well. Not to mention that the more you make the more taxes are taken out. Many of our bills are calculated on your gross income and not net (what you get after taxes) which, by the way makes not sense and is highly unfair.

Unless you are in the top 1% who are multi-millionaires and billionaires then they write your expenses off or are not taxed as much because of their supposed philanthropic nature. The thought is that they will give back to society as a whole. So essentially it is the poorest people in our society who are paying the most taxes even though they can lease afford it. In that case who can save?

Answer 3

Since most people have less than ever, they can't save. That's more than enough to bring the general rate down.