Hit on the Middle Class: Changes in Savings Practices

This continues our series examining the Federal Reserve Board’s report on consumer income

The Federal Reserve Board released Changes in U.S. Family Finances from 2007to 2010: Evidence from the Survey of  Consumer Finances in the June 2012 Federal Reserve Bulletin. Most of this post will consist of quotes directly from the report. “Because saving out of current income is an important determinant of family net worth, the SCF asks respondents whether, over the preceding year, the family’s spending was less than, more than, or about equal to its income. Though only qualitative, the answers are a useful indicator of whether families are saving.”

Changes in Saving Patterns

“The proportion of families that reported they had saved in the preceding year fell substantially from 56.4% to 52.0%. That decrease pushed the fraction of families reporting saving to the lowest level since the SCF began collecting such information in 1992. The general pattern of changes across demographic groups in the recent three-year period is also one of decline, as retirees were the only group reporting an increase in the fraction that saved.”

• “The study shows an annual saving rate of 5.3 percent between 2008 and 2010, up substantially from the 2.2 percent rate over the 2005–07 period
• In 2010, 6.0% of families reported that their spending usually exceeds their income
• 19.6% reported that income and expenditures usually equaled one another
• 34.8% reported that they typically save income left over at the end of the year
• 39% reported that they save regularly
• #1 reason people listed for saving was to have liquidity of money
• #2 reason people listed for savings was retirement“

Economic Downturn Had Modest Effect on Saving

“These estimates show a small decrease between 2007 and 2010 in the share of families who reported regular saving, but in general, the fact that these figures are not much changed over the past several surveys suggests that economic conditions over this period had only modest effects on the longer-run saving plans of families.”

Friday we will examine the changes reported by the Fed in real estate wealth