The Decline in U.S. Saving Rates: A Cause for Concern?

The surging federal budget deficit and health care reform proposals have been the subjects of choice in recent public policy debates. Relatively little attention, however, has been focused on another significant and ongoing economic phenomenon — the precipitous drop in saving rates in the United States. Should this decline be a cause for concern? The answer, of course, depends on whether the reduction is temporary or permanent and on whether it has the potential to seriously damage the U.S. economy. Moreover, if policymakers choose to address this problem, they should understand the underlying factors that led saving rates to plummet beginning in the past decade.