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A Dollar’s Worth: Inflation Is Real
Understanding the reality of inflation can help consumers make decisions in personal finance. Learn more about inflation, how it’s measured, and how the inflation rate is calculated in the December 2021 issue of Page One Economics: Focus on Finance.
Working Paper
Why Do Households Save and Work?
This paper develops and estimates a dynamic life-cycle model to quantify why households save and work. The model incorporates multiple sources of risk—health, marital status, wages, medical expenses and mortality—as well as endogenous labor supply and human capital accumulation, retirement, and bequest motives at the death of the first and last household member. We estimate it using PSID and HRS data for the 1941–1945 cohort via the Method of Simulated Moments. Eliminating bequest motives reduces aggregate wealth by 23.8% and labor earnings by 1.2%; removing medical expenses lowers them ...
Working Paper
Do the Rich Really Save More? Answering an Old Question Using the Survey of Consumer Finances with Direct Measures of Lifetime Earnings and an Expanded Wealth Concept
The question of whether affluent households save at a higher rate than other parts of the distribution has been asked by economists on numerous occasions since the 1950s. It is standard in this research to define affluent, or “rich,” households as those with high lifetime earnings or income to better ground the empirical question in relevant theory. However, results in the literature are mixed regarding whether rich households in fact save more than others, with some studies suggesting a generally flat saving-rate profile across the distribution and others supporting the notion that the ...
Discussion Paper
Spending Down Pandemic Savings Is an “Only-in-the-U.S.” Phenomenon
Household saving soared in the United States and other high-income economies during the pandemic, as consumers cut back on spending while government policies supported incomes. More recently, saving behavior has diverged, with the U.S. saving rate dropping below its pre-pandemic average while saving rates elsewhere have remained above their pre-pandemic averages. As a result, U.S. consumers have been spending down the “excess savings” built up during the pandemic while the excess savings abroad remain untapped. This divergent behavior helps explain why U.S. GDP has returned to its ...
Journal Article
Negative Sentiment toward Spending and Declining Real Incomes May Meaningfully Lower Consumption
Despite a contraction in real GDP in the first half of 2022, consumer spending has remained resilient. We examine a set of factors that have historically affected consumption growth and find that excess savings have boosted consumer spending during the COVID-19 pandemic. However, as excess savings decline and economic relationships normalize, negative sentiment toward spending and declining real incomes may meaningfully lower consumption.
Discussion Paper
What Is the Outlook for China’s External Surplus?
The sharp slowdown in China’s property sector has reignited debate over the country’s future role as a net provider of savings to the global economy. The debate revolves around whether a sustained decline in property investment will spur a long-term increase in China’s current account surplus, given the country’s high savings rate. However, China’s rapidly aging population presents opposing forces that complicate this story. The shift of a large share of its population from working life to retirement will reduce savings supply even as a shrinking labor force will reduce investment ...
Working Paper
Accounting for racial wealth disparities in the United States
Using data from the Survey of Consumer Finances, this paper updates and extends previous research on the racial wealth gap in the United States. We explore several hypotheses that help explain differential wealth accumulation by racial groups, including the importance of receiving inheritances and other financial support from relatives and the conditions in local real estate markets. By exploring the disparities among white, black, and Hispanic families, we make new contributions to the literature. We find that observable factors account for the entire wealth gap between white and Hispanic ...
Transfer payments, household savings play key roles in growing U.S. deficit
While recent levels of government borrowing have been high, private savings by U.S. residents have been elevated as well. As a result, overall borrowing for the entire U.S economy has been remarkably stable.
Journal Article
Savings programs associated with VITA
There are thousands of Volunteer Income Tax Assistance (VITA) sites across the country and more than 250 in Texas. Located at libraries, community colleges, churches and community-based organizations, these sites pop up during tax season in areas accessible to low- and moderate-income (LMI) workers.
Journal Article
The Rise and Fall of Pandemic Excess Savings
U.S. households built up savings at unprecedented rates following the strong fiscal response and lower consumer spending related to the pandemic. Despite recent rapid drawdowns of those funds, estimates suggest a substantial stock of excess savings remains in the aggregate economy. Since 2020, households across all income levels have held a historically large share of savings in cash or other easily accessible forms. Estimates suggest that those funds could be available to support personal spending at least into the fourth quarter of 2023.