Alternative Measures of Saving

You might at this point ask. “If people are saving so little, why are there so many rich people?” This question raises an important point about measuring personal saving. Saving looks different to the household than to the nation as a whole. This is so because saving as measured in the national income and product accounts is not the same as that measured by accountants or in individual balance sheets. The national-accounts measure of saving excludes capital gains (increases in asset values), while balance-sheet measures include capital gains.

The different perspectives of the national accounts’ and household balance sheets are shown in Figure 22-8 on page 468. When the major increase in the value of assets (particularly stocks) is included, the saving rate in the 1990s was a healthy 17 percent as compared to the 3 percent measured in the national accounts. Many economists believe that the wealth effect can go a long way to explaining the decline in saving as measured in the national income accounts.

Hence, economists are justified in worrying about the decline in the national-accounts saving rate. While consumers may feel richer because of the booming stock market, the nation is actually richer only when its productive tangible and intangible assets increase.