Savings Won't Be Getting A Boost From Boomers
With a savings rate well under 5% in recent years, the U.S. has a global reputation as a nation of spendthrifts. Some economists have optimistically suggested that this may soon change as an aging baby-boomer population starts putting away money to cover college costs and retirement. But a new report by economist Edward F. McKelvey of Goldman, Sachs & Co. is much more downbeat, arguing that demographic changes are likely to provide scant increase in savings. First, says McKelvey, "there's little evidence that excessive consumption by yuppies was responsible for the saving slump." True, consumers did save less. But McKelvey calculates that they were spending more on medical care rather than splurging on such discretionary purchases as clothing and recreation. As the boomers age, medical expenses are likely to rise rather than fall.
McKelvey also points out that baby boomers just aren't numerous enough to boost the savings rate very much. To be sure, households headed by 45- to 54-year-olds save some 8.1% of their income, about twice the national average. And this group will make up 20.2% of the population by the year 2000, up from 15.5% in 1990. But this shift would increase the savings rate by only half a percentage point--far less than some have predicted. So according to Mc-Kelvey's analysis, the savings rate will get no free ride from demographics.