Americans are saving more than you think.
They aren't exactly thrifty, mind you, let alone as penurious as Suze Orman and the other personal-finance Puritans want them to be.
Years of measly raises have kept many workers from being full participants in the nation's economic growth and hurt their ability to build nest eggs. Many who do have good incomes and raises blow the money on new luxury goods and debt service on old luxury goods.
But this week's government report that the 2005 savings rate went negative, that in the course of a year Americans spent more than they earned for the first time since the Great Depression, should be taken at far less than face value.
Every day people cash appreciated stocks and bonds and save the proceeds. Empty-nesters trade big homes for townhouses and pocket the difference in price. Higher house values allow residents to secure home equity loans or pass money to heirs when they die. Retirees collect millions in pension benefits.
All of this adds to consumer wealth and liquidity. None of it is counted in the official savings rate, which the Commerce Department said Monday was negative 0.5 percent for 2005.
A look at the entire household financial picture, rather than the portion revealed by the government, shows that Americans aren't quite as profligate as they are often portrayed and that the consumer may still have some fuel in the tank.
"If you want to look at what people actually have in their pocket to spend now," the savings rate is not a good measure, says Patrick Franke, a senior economist with Commerzbank in Frankfurt, Germany. "You should consume it with a pinch of salt."
Sometimes the best perspective comes far away from the subject.
Franke and his Commerzbank colleagues have studied the savings rate intensively and are less pessimistic about the American consumer than many U.S. analysts. For years they have pooh-poohed hand-wringing over the savings statistics, and for years they have been right.
"The U.S. saving rate: Why the world wouldn't end at 0%," was the title of a piece Franke wrote a year ago. Now that 0 percent is here, he says he hasn't changed his mind.
Housing prices have doubled in recent years, but the government doesn't count them in the savings rate. The stock market, as measured by the S&P; 500 index, has tripled in 15 years and risen by half in three years. The bond market has soared, too. But stock and bond gains, except for dividends and coupon payments, aren't included in the savings rate either - even if the securities are cashed in.
There are good accounting reasons not to count capital gains as savings from income. But such gains have become increasingly key to consumer finances, and they shouldn't be completely discounted.
Stock and housing gains aren't just for the rich anymore. We have become the ownership society President Bush says he wants us to be. Homeownership is at an all-time high: around 70 percent of households, says the Census Bureau. One in two households owns stocks, says the Investment Company Institute.
A few years ago, in a New York Times op-ed piece, Dresdner Bank's Klaus Friedrich (another German) figured that the 1997 U.S. savings rate would have been a decent 8 percent if capital gains were counted, not 0.8 percent as officially reported.
Here's another problem: While ignoring capital gains from stocks and houses, the official government savings rate includes capital gains taxes on those items as an expenditure, subtracting them from personal income and making the savings rate look even lower.
And another: Every year pension funds pay billions of dollars to retirees that aren't counted on the positive side in the official savings rate.
There is a rationale for this. The government books pensions as personal income when employers contribute it to a pension pool, not when it gets paid out years later and retirees can actually spend it, says Oak Associates investment strategist Ed Yardeni, another analyst who holds higher-than-average faith in the U.S. consumer. (The idea is to measure income produced by current labor.)
But since the mid-1980s, as the population has aged, pension payouts have vastly exceeded pension inputs, and the gap has been getting wider - "a big discrepancy," Yardeni says.
Pension benefits surpass employer contributions these days by some $200 billion a year, according to Franke. That's $200 billion in household income that doesn't get counted in the official savings accounts. If it were, it would add another 2 percentage points to the savings rate, I figure.
No, the U.S. savings rate is probably not what it should be, even if we measure capital gains and pension disbursements. But its true level, as it applies to household wealth accumulation and buying power, is a lot higher than zero.