During economic downturns, unemployment rises, which limits many people's ability to save. This is why it is so alarming that the personal savings rate has dropped steadily from 8.7 percent during 1992 to about zero during 2000. This has been a period of steady economic growth and widespread gains in disposable income, yet people are not saving. A. Counting on a rising stock or real estate market to substitute for current saving is very risky. First, markets can go down as well as up.
History is replete with unexpected crashes in stock and real estate markets.
Second, counting on capital gains as a long-term saving plan is actually betting on future profits and incomes that may or may not occur. Unfortunately, as a nation, many people have chosen to forgo personal saving. And, if future corporate profits and personal incomes are disappointing, asset prices will fall. People without savings will not be able to repay the debt they took on earlier to buy their higher standard of living.