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Household Saving In Australia - Essay Example

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Household Saving In Australia

Though the household savings rate has improved since bottoming out in 2003, they are still well below typical historical levels. After reaching a high of nearly 15 percent by the 1980s, there has been a steady decline, which hit a modern low of -2.7 percent in 2003 (Statistics portal 2009). The level has remained low and has shown no correlation to the rate of GDP growth during the last 30 years (Statistics portal 2009). However, the declining rate has a significant correlation to the personal debt to income ratio, as "in the 1980's, the average household owed less than $50 in debt for every $100 in income. In just 15 years, the ratio has tripled to almost $160 in debt for every $100 of income" (Gilbert & Disney, 2007, p.1). People are using disposable income to pay down and manage their debt, and there are little left for saving.
Individually there are numerous reasons why an individual may choose to put some money aside, or fail to save anything. However, as a population there are some trends. Almost 75 percent of the people that make less than 20K per year had any savings, and this figure increased with income reaching 95 percent for those making over 60K (Harris, Loundes, & Webster 2002, p.209). In addition, people making over 60K were twice as likely to be saving for retirement, while those that make less than 20K were saving for an unforeseen emergency (Harris, Loundes, & Webster 2002, p.209). It has also been reported that women tend to save more than their male counterparts due to their living longer and having more retirement years (Loundes 1999, p.22). Superannuation and other 'forced' mechanisms for savings have been credited for the slight rebound in savings levels in recent years.
Societies that saved have traditionally been thought to have healthy economies, but too much saving may reduce demand and slow the economy. Demand side economists suggest that in times of an economic slowdown, consumers and the government should borrow and spend rather than save. According to Skousen (2001, p.362), "if the public decides to save more during an economic turndown, it only makes matters worse". Consumers purchase fewer products, industry lays off workers, and there is less income to save. However, critics of demand side policies contend that increased savings would "have a favourable effect on interest rates, the rate of inflation, the current account deficit and future living standards" (Vamos 2008). The debate on individual savings is no less contentious than it was 75 years ago when Keynes argued that we could spend our way out of a depression.
In conclusion, Australia has been following the world trend of a reduced level of savings for the last 30 years. In the current economic downturn, the time may not be ideal to recommend saving for the general public. However, for the individual there is never a wrong time. Savings may be needed for an unforeseen emergency or for their coming retirement, as well as help stabilize an economy that is already in a significant downturn.


References

Gilbert, R & Disney, S (eds.) 2007, Australia's National Saving Revisited: Where do we stand now, Press release from IFSA's National Savings Report, Sydney, AU, viewed 14 May ...Show more

Summary

Individual savings has remained one of the most paradoxical issues in economics ever since John Maynard Keynes (2006, p.77) proclaimed that savings, like spending, is "a two-sided affair". Individual motivations can deem to be ambiguous as people may feel less compelled to save when time are good, and may not have the extra income to save when times are bad…
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