ARE YOU SAVING ENOUGH.

• Position: Impact of personal savings on the economy - Brief Article

"America's personal savings rate plummets to record lows," scream the headlines. Americans need to save more, observers maintain--savings is what lubricates the national economy. Nonsense, counter a chorus of critics--the low rate is misleading and Americans actually are saving far more than the figures indicate. So are you or aren't you saving enough?

The Institute of Certified Financial Planners, Denver, Colo., suggests that, to answer that question, it helps to know how much you should be saving. The most precise answer, of course, is saving enough to meet your financial goals, such as paying for your children's education and building a nest egg for retirement. A broader rule of thumb suggested by many financial planners is to save at least 10% of your gross income. Yet, according to personal savings rate figures published by the Federal government, the U.S. has not seen anything close to 10% since the early 1980s. The rate was around zero for 1998 and, for the first three months of 1999, it was at minus one-half percent, a record low!

"Misleading," contend numerous others, because of the way the government calculates the savings rate--by taking total personal income and subtracting such items as purchases, taxes, and interest payments. For starters, however, payments a worker makes to Social Security are counted as an expenditure, even though most people would consider it saving for retirement.

Second, the savings rate doesn't take into account gains made by the stock market and other investment assets, yet taxes on those gains are included as an expense in the calculation. Indeed, by government calculations, Microsoft president Bill Gates is a negative saver since he spends far more than his modest annual salary. Of course, he is able to do that because the value of his company's stock keeps climbing, and he can sell off shares as necessary to fund his lifestyle.

This ignoring of capital gains comes into play because employer contributions to traditional pension plans are treated as personal income. If the pension plan is growing well as a result of stock market gains, the employer doesn't have to contribute as much in order to meet pension funding...