Econ Grapher

Personal Savings Rate

What is the Personal Savings Rate?
The Personal Savings Rate or PSR, is a percentage metric designed to measure the aggregate savings by individuals in an economy. It is calculated by savings as a proportion of income, i.e. subtracting personal consumption expenditure from disposable income. Typically it is calculated as part of GDP calculations, and as such is often defined as the percentage of GDP that is saved by households across a country. For example the Bureau of Economic Analysis in the US reports the US personal savings rate on a quarterly basis. (Note, the BEA defines it in their glossary as: Personal saving. Personal income less the sum of personal outlays and personal current taxes.)

How does it relate to Markets?
The savings rate matters to markets in a couple of ways, in the short term because personal savings are the flipside of consumption expenditure; a higher savings rate will mean less consumer spending and thus may hurt stocks exposed to that sector or even may indicate a slowing of the economy. Indeed the personal savings rate will often increase during a recession as people cut back on spending. In the long run however the personal savings rate is linked to investment, which is linked to long run economic growth potential; so obviously a higher savings rate is desirable, but of course there is a balance to find.

Corporate Savings, Government Savings, and the National Savings Rate
The personal savings rate is often different from the national savings rate, because the national savings rate included corporate and government saving. Corporate saving comes in the form of retained earnings (i.e. profits minus dividends and taxes), and Government saving comes in the form of budget surpluses. The reason for the difference in personal and national savings should be obvious, for example if the government is running a budget deficit, then the government is dis-saving, and so the national savings rate will be reduced by this amount.

Sources and further reading:
US Bureau of Economic Analysis
WikiInvest - National Savings Rate
Investopedia - National Savings Rate
Wikipedia - Saving

Graph Library:
Metric - Savings rate

Original Source: http://www.econgrapher.com/encyclopedia-savingsrate.html

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