Why is the 'wealth gap' a bad thing?

I regularly read that the savings rate for Americans is zero or less. My question is,  when I make a mortgage payment, is the principle portion of my payment considered savings? What if I send in extra?
-- David, Delafield, Wis.

Ironically, paying off your mortgage faster than you're supposed to would probably lower the savings rate — at least the way it’s computed by the Bureau of Economic Analysis in their National Income and Product Accounts data, which is where the widely quoted “savings rate” comes from.

There's no question we could all use a little more savings — especially those nearing retirement who have waited way too long to get started. But the "official" saving rate doesn't tell you much about how much all of us are really saving.

That’s because these numbers simply take your income, subtract what you spend and then look at what’s left over. If there’s nothing left, you’ve got no savings. Spending on housing (whether rent or mortgage payments) is a considered a cost, so it shows up on the wrong side of the ledger.

And if you socked away a little money in a stock and it went up, that increase isn’t called savings either. Neither is the increased equity in your home — the biggest single “savings account” for most Americans.

Then there’s the thorny problem concerning the treatment of pension contributions by employers. Because these payments are are counted as income when the BEA calculates the "savings rate", your pension shows up in the savings numbers long before you can get your hands on it. More to the point, as defined-benefit pensions (the kind that pay a monthly check you get when you retire) go the way of the 30-year retirement gold watch, billions of dollars that were once counted as “savings” no longer show up in the statistics.

And you don't have to blow your weekly paycheck on a flat panel TV to shoot a hole in the "official" savings rate. College expenses — a form of spending that could better be defined as “investment” — is counted as spending, not saving. So the ongoing surge in the cost of higher education is also taking a bite out of the savings rate.

That’s why most economists don’t bother with the savings rate and look instead at changes in household net worth. That measure treats investments as savings and fully accounts for the impact of consumer debt. In the “official” savings rate, for example, only your monthly credit card payments are counted. So if you only make minimum payments, the statistics make you look richer than you are.

When you look at these broader measures of savings, the outlook is much more promising. A 2002 paper, using data from the BEA and the Federal Reserve, compared the narrow definition with a more comprehensive measure of personal savings that includes savings in pension accounts and capital gains on stocks. The narrow measure showed the rate declining to less than 5 percent in the 1990s. But the wider measure showed a savings rate of 25 percent for the decade.

For further reading, see “Spendthrift Nation” from the Federal Reserve Bank of San Francisco, published Nov. 10, 2005.

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