DEFINITION of National Savings Rate
The national savings rate is an estimate from the U.S. Commerce Department's Bureau of Economic Analysis (BEA) of the amount of income left over after subtracting consumption costs and expenditures. The National Savings Rate, though it is referred to as a "savings rate," does not actually measure the amount of money Americans are saving or investing for the long-term. The rate is in fact a type of quotient that shows declining or increasing trends of savings and how the economy of the country is performing. National savings include money left over by individuals, businesses, and government after their expenditures are accounted for.
BREAKING DOWN National Savings Rate
The National Savings Rate may be confusing figure to discern at first glance, due to the fact that it can be substantially less than what the typical American reports contributing to their employer-sponsored retirement plans and IRAs. This difference is because the national savings rate includes government savings, and they are usually reporting deficits, which lower the national savings rate.
How the National Savings Rate is Factored
The key figures in the national savings rate are income minus consumption. That difference is then divided by income to generate the savings rate. The collective spending behaviors of households and public and private entities can swiftly affect the direction of the national savings rate. Even if income rises, if the consumption rate also escalates, the savings rate will not improve and some cases it may even decline.
The nature of certain subsidized retirement programs might mean that less actual money is saved, lowering the national savings rate. A perception can occur among the populace that the overall returns generated by such programs will generate more than enough equity for their retirement can lead to households electing to not put more money towards savings.
There may also be government-backed pension programs for retirement, paid for through taxation of those who continue to work. This can contribute to a trend of less money being actively saved in anticipation of benefiting from such programs. In instances wherein households do not have access to subsidized retirement funds, they must focus on setting aside more of their own money for retirement, which would subsequently elevate the national savings rate.
When measured as the percentage of the gross domestic product saved by households, the national savings rate can be used as a barometer for growth in a country. The savings that households accumulate can be a source of borrowing for governments to provide revenue to public works and infrastructure needs, for example.