Why don't Americans save more?

In my last post I showed that most Americans wish they had saved more before they had to retired. Despite that fact, savings rates have been dropping in the United States. The graph below shows the U.S. savings rates in black. The savings rates of Japan and Germany are shown for comparison.



Europeans tend to save much more than Americans, and some reports claim that the Chinese save close to 25% of their income. The sources of this data come from the OECD 2011 Factbook. It can be found in a cool interactive graph here. The data isn't perfect because it sometimes counts automatic 401K contributions as expenses instead of savings. But, most economists believe that the general trend is correct.

Here are a few possible reasons why the U.S. savings rate is so low.

(1.) Median household income has been stagnant in the past 10 years and new and attractive goods and services such as iPads and fun vacations entice people to spend more and save less. I guess this is what is often referred to as consumerism.

(2.) Americans sometimes "save" in the form of human capital. They spend their money on education and earnings ability because they can "always earn more later" with higher skills.

(3.) The American tax system discourages savings by taxing investment income and capital gains. According to the economist Steven Landsburg, "The death tax sends a powerful message to rich people: "You can't leave everything to your heirs, so spend now, before it's too late. Burn more fuel. Demand more timber for your mansions, more steel for your private planes, and more fiberglass for your yachts."

(4.) It is relatively easy for the poor in America to get a loan if needed. So why save for a rainy day when one can just borrow easily instead?

(5.) American's also save in the form of home equity hoping that a future home sale will provide some retirement funds.

(6.) And then there is the standard explanation that it seems difficult for people in general to subordinate what they want now for what they want later. Hence, many people tend not to plan for the future and instead live for the present. This is the 'eat, drink, and be merry for tomorrow we die' explanation.

Whatever the reason, everyone would benefit from some serious introspection into why they are not saving more. If everyone did this, we would likely have more savings and less regret in retirement years.