Lending Club Blog

National Savings Rate Revisited

As regular readers of the Lending Club blog are aware, the savings rate in our country is hovering around zero. This year the rate was even reported to be below zero. While this number is clearly not sustainable, it also begs the question about the accuracy of the method of calculation.

There are many ways to calculate how much money people are (or aren’t) saving. The rate frequently quoted in the media is the one provided by the US Bureau of Economic Analysis, but there are some limitations to that number that cause it to be misleading.

The method used to calculate it is to look at the post-tax income of the average American and compare that with their spending. The difference is the amount that they save. The problem with this method is two-fold. First, many Americans do a large percentage of their savings pre-tax by using tax-deferred investment vehicles like 401K retirement plans. Second, not all spending is equal. Clearly buying consumable items like food, clothing, and electronics are true spending items. Other expenses, such as your home or another investment, are not as easy to quantify.

Paying your mortgage each month, which may seem like an expense, is also a savings method for many people because a portion of the payment is used to build equity in your home. Other investments with the potential for interest or capital gains face similar ambiguity. If you invest in a person-to-person loan portfolio with Lending Club, you may do so to get a better rate than you would get by saving your money with a bank. Such an investment however, looks like an expense when using the government’s simplistic method of determining the personal savings rate.

More intangible investments have similar problems. If you spend money on an education, would you be better off than if you saved the money? If the value of what you learn enabled you to earn more money in the future, then you likely would be better off spending the money in such a way.

Spending more than you have left after taxes probably isn’t a good habit, but it doesn’t necessarily mean that you’re not saving. The concept of “saving” is more complex than what can be easily measured for the average American. As such, I recommend looking at your own individual finances to determine if you are saving an appropriate amount. By considering your tax-deferred contributions, your investments, and your spending to increase your future earnings, you’ll have a much better understanding of your own savings habits than any government statistic could hope to provide.

Thursday, December 6th, 2007 at 5:36 am

Comments (0)

Recommended

Welcome Home

Lending Club named #5 on Forbes’ Most Promising Companies List

Get ready for tax season with Lending Club’s Tax Form Guide

New Adjusted Return Metric

See more
Lending Club Awards
  • Archives z

Recent Posts

Lending Club 2 – Back in the Race

We’re excited to see Renaud back at the helm!… Read More »
March 26, 2015

Lending Club Store’s Grand Opening

We were thrilled at the support we received from… Read More »
March 20, 2015

LendIt is just one month away!

Congratulations to the LendIt team, who rang the opening… Read More »
March 13, 2015

Nearing Retirement – How an IRA Can Help

An Individual Retirement Account (IRA) can help you prep… Read More »
February 25, 2015

How an Individual Retirement Account (IRA) can help you reduce your taxes

For many investors, January is… Read More »
January 23, 2015

We went public today!

Ringing the bell this morning at the New York… Read More »
December 11, 2014

New and Improved Statistics Page

We recently redesigned our Loan Statistics page to make… Read More »
November 13, 2014

Lending Club Honored with Economist Innovation Award

This month I was honored… Read More »
October 15, 2014

Welcome Vermont Investors!

Today, we’re thrilled to welcome residents of the state… Read More »
September 4, 2014

We filed to go public today

We filed a registration statement with the SEC today… Read More »
August 27, 2014

2014

We went public today!

Ringing the bell this morning at the New York… Read More »
December 11, 2014

New and Improved Statistics Page

We recently redesigned our Loan Statistics page to make… Read More »
November 13, 2014

Lending Club Honored with Economist Innovation Award

This month I was honored… Read More »
October 15, 2014

Welcome Vermont Investors!

Today, we’re thrilled to welcome residents of the state… Read More »
September 4, 2014

We filed to go public today

We filed a registration statement with the SEC today… Read More »
August 27, 2014

Our Billion Dollar Quarter

We’re excited to announce  that we’ve facilitated over $5… Read More »
July 8, 2014

Is Lending Club Available in My State?

Is Lending Club available in my state? That is… Read More »
July 7, 2014

Lending Club Joins Senator Cory Booker to Discuss Improving Access to Capital for Small Businesses

Read More »
June 20, 2014

Lending Club Named a CNBC Top 50 Disruptor for a Second Year

For the second year in… Read More »
June 17, 2014

PRIME is now Automated Investing

Lending Club is excited to announce that PRIME has… Read More »
May 14, 2014
View All w