Understanding the Postwar Decline in United States Saving: A Cohort Analysis

The rate of saving in the United States has declined dramatically in recent decades. Since 1980, the U.S. net national saving rate has averaged just 4 percent. Since 1990, it has averaged just 2.4 percent-one-quarter the mean rate observed in the 1950s and 60s. This paper develops a unique cohort dataset to study the decline in U.S. national saving. It decomposes postwar changes in U.S. saving into those due to changes in cohort-specific consumption propensities, those due to changes in the intergenerational distribution of resources, those due to changes in the rate of government consumption, and those due to demographic changes.

Our findings are striking. The decline in U.S. saving can be traced to one major factor: The redistribution of resources from young and unborn generations with low or zero consumption propensities toward older generations with high consumption propensities. Most of the redistribution to the elderly reflects the growth in Social Security, Medicare, and Medicaid benefits. Although older generations' propensities to consume have increased significantly, those of younger generations have declined or remained constant over the last three decades. The increase in older Americans' consumption propensities may also reflect government policy, namely, the fact that Social Security benefits come in the form of annuities and that Medicare and Medicaid benefits are provided to the elderly directly in the form of consumption of medical goods and services.