Question

The U.S. saving rate increased from -0.1 percent in 2011 to 2.0 percent in 2012, to 2.4 percent in 2013, to 2.9 percent in 2014, and to 3.0 percent in 2015.

How can the saving rate be negative? Why might a negative saving rate be something to worry about? How might U.S. saving be increased?

Answer 1

Negative savings does not mean that we are not saving anything, it means we are saving less than we are spending. So if economy spends more than it saves, its savings can be negative.

There are many risky things related negative savings rate such as growth of the economy.

Savings plays an effective role in capital accumulation and thus supports in determining economic growth in future. Negative savings is insufficient to help investment level necessary to endure good level of economic growth in long run without depending much on foreign capital.

If an economy keep up with the negative savings rate then in future it will be needing international grants, foreign direct investment, there will be long credit lines.

People of the economy gets vulnerability to economic shocks with the Negative savings rate.

Savings could be increased in the U.S by reduction in personal income tax, reduction in business taxes, reducing budget deficit etc.

By decreasing the budget deficit, the government can save more. Government can reduce it by cutting purchases by government. If government raise the taxes then also savings can rise as people will be forced to consume less. But also tax cut inspires people to save more and take more risks. If the savings are very much responsive to the real interest rate then cut in tax which rises the real rate of savings would lead people to save more.

So by change income tax government could easily influence the savings rate in U.S.