The US government today announced that the personal savings rate of its citizens for last year was -0.5%. That means, on average, every citizen is spending more than their disposable income (income after taxes). This is the first time we have had a negative savings rate since the Great Depression era (for comparison, it was 10.8% in 1984). For the month of December alone, spending went up 0.9% while real wages only creeped up 0.4%
Things don't look good. Admittedly, some nations have a problem with too high a savings rate, which means that the market is inefficiently misplacing capital. But to spend more than you have is a recipe for disaster. What it does on a macro scale is to leverage the economy, providing it with a boost when times are good, but unwinding things horribly when times are bad.
Is there any reasonable expectation of change? It appears unlikely. We have positioned our economies incredibly on consumer spending and cheap credit, and seemed to have as a society ignored Puritan values such as thrift. One only needs to look at the craziness of our iPod obsession (I can't fathom someone paying $300 for a fancy walkman!) to realize that something's out of whack!
Add in all those underfunded Social Security and Medicare obligations, commitments many older workers seem to be counting on (I was shocked to talk to people who indicated they didn't need to save because their SS/pension plan was there!) ... and I'd say be scared ... be very scared!
Postscript A 1999 study by the Consumer Federation of America showed that despite the preceding stock market boom, half of all Americans had accumulated less than $1,000 in net financial assets and modest net wealth of $35,000. More households with incomes under $35,000 believed that they are more likely to accumulate a nest egg of $500,000 by winning a lottery or sweepstakes (40%) than by patient saving and investing a modest sum (30%. But most fascinatingly, they found that the quintile with the least net financial assets had a median income of $31,700, while the median incomes of the next two quintiles of net assets were $13,100 and $25,500. This is consistent with another study I read (and that I've been meaning to post on) that disproves the myth that savings are related to incomes. Yes, that's right, you don't have to make a lot of money to have a decent net wealth, and having a high income is no guarantee that you will be wealthy!