subject because the government publishes additional measures of household saving. one such measure, produced by the federal reserve, uses different source data to estimate the same concept of savings. the fed measure suggests that households have been putting away about 3 to 4 percent of their income in recent years, a little more than estimated by the commerce department. but, importantly, it also shows the same precipitous decline since the early 1980s in the personal saving rate. interestingly, the fed ’ s study of this issue shows that the decline in the saving rate of households at the top 20 percent of the income distribution accounts for virtually all of the decline in the aggregate personal saving rate since 1989, the first year for which estimates on saving by income quintile are available. that is, the saving rates of the bottom 80 percent of the income distribution have fluctuated in a relatively narrow range and importantly have shown no secular decline since 1989. should we worry about the fall in the personal saving rate? do we need to worry about the fall in the personal saving rate? taking a big - picture point of view and asking whether the low rate signals that adjustments are needed for the future for the u. s. economy, the answer is a conditional “ yes ” ; but the period over which those adjustments will occur is very unclear. in the aggregate, an economy needs to generate savings for two basic purposes - to invest in new plant and equipment with the aim of raising future consumption growth and to expand the residential housing stock, thereby boosting the flow of housing services over time. thus, the act of saving is essentially about the allocation of an economy ’ s resources : some sector of the economy must be willing to consume less than its current income to free resources for the purchase of capital. intuitively, we often think of saving in financial terms : rather than spending our entire paycheck, we put money aside into savings accounts or certificates of deposits, and the bank lends this money to business ; or we lend directly to firms by buying corporate bonds or stocks. similarly, corporations save by not paying out all their profits to their stockholders. but underlying all these financial transactions is the reallocation of resources away from the immediate consumption of goods and services and toward the purchase of capital goods - goods that are not consumed directly but are instead used to produce future goods and services for consumption. how much should an economy save and invest? the answer comes down to a decision about what combination of capital and labor inputs minimizes

roger w ferguson, jr : questions and reflections on the personal saving rate remarks by mr roger w ferguson, jr, vice chairman of the board of governors of the us federal reserve system, to the national bankers association, nashville, tennessee, 6 october 2004. * * * i am delighted to be here today to offer my thoughts on an issue that i believe is important to all of us : the long - standing decline in household saving. since the early 1980s, the personal saving rate has fallen steadily ; on average, a household today saves only about 1 - 1 / 2 percent of its disposable income, compared with about 11 percent in 1984. the fall in the personal saving rate could have important implications for the ability of the country to finance investment in plant and equipment, for future growth in productivity and real incomes, and for our growing economic dependence on other countries to finance our spending patterns. although my remarks today concentrate on the behavior of household saving and overall national saving, i also want to spend some time on a related issue : what is the evidence on the saving of minority households? much has been written about the adequacy of retirement saving for many american households and the wealth accumulation of different income cohorts. but what do we know about the saving of minority households, and does it differ from the saving of low - income households, where minorities are disproportionately concentrated? let me turn first to the bigger picture. personal saving, as measured by the commerce department ’ s bureau of economic analysis, is essentially the amount of after - tax income left after household bills are paid. from the end of the second world war until the early 1980s, the personal saving rate personal saving expressed as a percentage of disposable income - gradually trended up. to be sure, the saving rate showed considerable volatility from year to year, and in some periods, such as the second half of the 1970s, its upward drift stalled for a time. but overall, the picture was that of a fairly steady rise in the personal saving rate, from about 7 - 1 / 2 percent in the early 1950s to around 10 - 1 / 2 percent in the early 1980s. since that time, however, the household saving rate has declined precipitously and, in the last couple of years, it has averaged only about 1 - 1 / 2 percent. as is often the case with statistics, the figures i ’ ve just given are not the only word on this