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THE DECLINING PERSONAL SAVING RATE: IS THERE CAUSE FOR ALARM?

INTRODUCTION

How much we save as a nation isimportant because saving provides the capitalfor the investment that fuels economic growth.Gross saving—the sum of government saving,business saving, and personal saving—indicates how much a nation can save andinvest, which is important to productivitygains, a rising standard of living, and agrowing economy.

Consequently, the personal saving rate is akey measure of how much Americans save ontheir own. Its importance is reflected in thepreferential treatment the tax code provides toemployer pensions, IRAs, 401(k) plans andother saving vehicles. In recent years, despitethe booming economy, the already low personalsaving rate has declined even further. Somepolicy makers are concerned about the declinebecause they believe Americans do not saveenough for their retirement or for financialemergencies, such as spells of unemploymentand large medical expenses. Policy makers andeconomists are also concerned about the effectsof the decline in personal saving on the overallhealth of the economy, including the nation’sincreasing dependence on foreign capital.

Two government agencies measurepersonal saving and publish an officialpersonal saving rate. One measure is based onthe National Income and Product Account(NIPA) developed by the U.S. CommerceDepartment’s Bureau of Economic Analysis(BEA), and the other is based on the FederalReserve’s Flow of Funds Account (FOFA).The NIPA rate is the more frequently cited ofthe two.

Like most government statistics, personalsaving rates are subject to constant revisions

based on changes in definitions and statisticalimprovements. Recent changes in the wayBEA classifies different activities in the NIPAhave resulted in significant and sudden swingsin its personal saving rate measure. Suchchanges often trigger swift and intensereactions on the part of policy makers andeconomists.

For example, in the fall of 1998, concernsabout saving adequacy grew when the personalsaving rate published by the BEA declinedsharply and actually turned negative (meaningAmericans “dissaved,” that is, consumed morethan they earned) for a time. The 0.2 percentmonthly decline in the personal saving rate inOctober 1998 (after the July 1998 revisions)was not only a decline but also its first negativeperformance since 1959, when BEA begantracking the figure on a monthly basis.1 Thisshift into negative saving territory coincidedwith technical revisions to BEA’s officialsaving measure and stimulated a debate aboutwhether this most recent drop was only astatistical aberration or a significant signpointing to the virtual disappearance ofpersonal saving, at least in the short run.However, in October 1999, BEA again revisedthe official saving measure, under its 11th

comprehensive revision of NIPA, but this time

1 In 1998, the personal saving rate was revised byBEA to exclude capital gains from mutual funds,which were shifted to business saving. BEA’srevisions and the greater significance of capitalgains caused the measured saving rate to dropfrom 1982 until 1997, but the rapid declineculminated in 1998 and 1999. The personalsaving rate in 1998 dropped from 1.2 percent inthe first quarter to 0.4 percent in the secondquarter, 0.2 percent in the third quarter, and 0.0percent in the fourth quarter. The personal savingrate in 1999 further dropped to -0.7 percent in thefirst quarter, and -1.1 percent in the secondquarter. (Macroeconomic Advisers, 1999.)

upward, so that the saving rate—while stillfalling—is no longer in negative territory.

The decline in personal saving has focusedattention on the adequacy of current savingmeasures. It has also focused attention on theissue of how to react to inevitable technicalrevisions that can significantly change astatistical indicator at one point in time as wellas over time.

With respect to the adequacy of currentmeasures of the personal saving rate, manyobservers of the economy are puzzled byBEA’s official statistic because they havedifficulty reconciling a declining personalsaving rate with the large inflows to mutualfunds and the strong performance of the stockmarket, which has generated vast capital gains.Some analysts believe that such gains haverendered Americans wealthier than ever, andthat a more appropriate measure of personalsaving would include such capital gains, whichthe current BEA measure does not.2

Despite a decline in personal saving, grosssaving at the national level (which includespersonal, business, and government saving) issteady largely because government budgets arenow in surplus. The numbers provided by theU.S. Treasury Department show that thefederal government’s non-Social Security (on-budget) budget was less than $1 billion insurplus for fiscal year 1999, while the SocialSecurity program (off-budget) was $124 billionin surplus for the same year.3

How to use this budget surplus is thesubject of intense political and policy debate.Some suggest tax cuts to encourage personalsaving, some recommend increasing spendingon education and health care, and others ropose

2 Gale and Sabelhaus (1999), U.S. CommerceDepartment. Bureau of Economic Analysis(1999), and Rippe (1999).3 Congressional Budget Office (2000).

buying down public debt to reduce federalinterest payments.

Since the scope of this paper is limited tothe declining personal saving rate, ourdiscussion will center on the measurement ofpersonal saving and the impact of its decline onthe economy and individuals.

This paper compares the two measures ofsaving—NIPA and FOFA—and addresses theissue of including capital gains in themeasurement of saving. It also discusses howthe personal saving rate has changed recentlyand over time, and whether the nation actuallyfaces a saving crisis. Projected saving trendsare then presented, and their implications forthe future economic health of the economy arediscussed.

TWO WAYS OF MEASURINGPERSONAL SAVING

The NIPA Approach

In the NIPA, personal saving is the differencebetween income and consumption (see Box 1).NIPA’s measure of household income from thecurrent production of goods and services is notintended primarily to measure saving. Personalsaving is calculated as a residual—what is leftover from personal income4 after consumption,taxes, and interest payments have beendeducted.

4 Personal income is defined as the sum of wageand salary disbursements, other labor income, netproprietor’s income, net rental income fromunincorporated business, personal interest income,dividend income, and transfer payments. Personaldisposable income is defined as personal incomeless personal contributions to social insurance andpersonal taxes.

BEA defines the personal saving rate as theratio of personal saving to personal disposableincome. For purposes of macroeconomicanalysis, BEA’s measure of the personalsaving rate has generally been considered thebest because it directly links saving toinvestment and hence to the productivecapacity of the economy. However, BEA’sdefinition, prior to the 1998 revisions, excludedall capital gains (accrued or realized) frompersonal income except gains from mutualfund distributions, which were classified asdividends to shareholders. Prior to its October1999 revisions (which were released inDecember), government retirement plans wereincluded as saving in the government sector,not as personal income.

Revision of NIPA Definition

In July 1998, BEA revised its definition ofpersonal income to exclude all mutual funddistributions.5 In October 1998, the personal 5 However, the mutual fund distributions werecounted as corporate retained earnings so theyshowed up as corporate saving. Thus, total savingdid not change. The decline in personal savingwas offset by an increase in business saving,although the tax liability is different in the two

saving rate declined and turned negative in thelast quarter of 1999. Although the personalsaving rate has been declining for the lastdecade and a half (see Figure 1), BEA’sdecision to exclude mutual fund distributionsaccelerated the decline relative to previouslypublished rates (see Figure 2).

Fig. 1: Historical Saving Rates (%)

-10

-5

0

5

10

15

20

25

1963

1967

1971

1975

1979

1983

1987

1991

1995

1999

Gross Saving/GDP

Personal Saving Rate

Govt. Saving/GDP

Source: Bureau of Economic Analysis

BEA redefined personal income for twomajor reasons. First, mutual fund distributionsdid not reflect actual production in theeconomy. Second, these gains grewenormously in the last few years, resulting inthe overestimation of personal saving andunderestimation of corporate saving. BEA’sprevious definition included mutual funddistributions because, in the early 1980s,individuals began saving more in the form ofmutual funds than in the form of traditionalbank deposits. Consequently, capital gainsfrom mutual funds became an important part ofpersonal income.

As the gains from mutual funds grewlarger, however, BEA realized that a sizableportion of personal income did not reflect

cases.

Box 1: NIPA Definition of the Personal Saving Rate

Let personal income be defined as Y,consumption as C, and saving as S. Then in asimple model with no taxes:

Y = C + Sor S = Y - Cor S/Y = 1 - C/Y

Personal income less personal taxes isdefined as personal disposable income.The ratio of savings to personal disposableincome is defined as the personal saving rate.

returns from current production and wastherefore inappropriate for income and productaccount calculations. The capital gains onequities, as such, have always been excludedfrom the calculation of gross domestic product(GDP), which is defined as the value of goodsand services produced domestically in a givenyear. Hence, BEA decided to exclude capitalgains from mutual funds as well to have a newmeasure of personal income that was consistentwith the GDP approach.

Secondly, since capital gains from mutualfunds were treated as dividends in the personalincome calculation, the impetus for BEA’sredefinition also came from massive increasesin capital gains accrued to individuals fromtheir mutual funds since 1994. According toBEA, this growth resulted in theunderestimation of undistributed corporateprofits (corporate profits left after payingdividends) and the overestimation of thepersonal saving rate. In 1997, BEA estimatedthat dividends distributed to individuals bymutual funds included about $61 billion incapital gains. As a result, the inclusion ofthese dividends, according to BEA, hadoverstated personal income by about 0.9percent, and the personal saving rate by 2.1percent.6 Consequently, the redefinition ofdividends significantly reduced the personalsaving rate from 1994 to 1998—a periodduring which there was a rapid upsurge in thevalue of the stock market. However, evenbefore BEA revised the definition, the personalsaving rate had already fallen to near recordlow levels.

On October 28, 1999, the BEA releasedNIPA estimates beginning with 1959 thatreflected its 11th comprehensive revision toNIPA.7 Of many changes in definitions andclassification of items, the ones that affect 6 U.S. Department of Commerce, Bureau ofEconomic Analysis (1998).7 U.S. Department of Commerce, Bureau ofEconomic Analysis (1999d).

personal/national saving include:

• Business and government purchase ofsoftware and “own-produced” software isnow classified as investment instead ofbusiness expense. This increasedmeasured GDP by $248.9 billion for 1998.

• In the government sector, government

retirement plans are now moved to thepersonal sector, and are classified asprivate retirement plans.

• Savings associated with government

retirement plans are shifted from thegovernment sector to the personal sector.Employer contributions to governmentretirement plans are now added to laborincome, and interest and dividends receivedby these plans are classified as personalinterest income and personal dividends.The revised estimates increased personalincome, and hence personal saving. For1982 to 1998, the personal saving rate nowdeclines from 10.9 percent to 3.7 percent,compared to the decline reported in August1998 from 9.0 percent to 0.5 percentduring this period.8 (See Figure 2.)

• • Certain transactions which were excludedfrom NIPA are now classified as “capitaltransfers.” These transfers have increasednational income as well as national saving.9

8 All saving rates reported in this paper are annualsaving rates.9 Such capital transfers include: federalgovernment investment grants to state and localgovernments for highways, transit, air, and watertreatment plants; federal government subsidies tobusiness; immigrants’ transfers to the U.S. (now apart of personal income); federal governmentforgiveness of debt owed by foreign governments;and estate and gift taxes (now a part of personaltax).

Comparison of the Personal Saving Rate Beforeand After the Revisions

In July 1998 when BEA revised itsdefinition of personal income, it simultaneouslyrevised its published personal saving rateretroactively to 1982 and reported the newlydefined personal saving rate as the revised rate.The two rates, original (published) and new(revised), were fairly similar until 1994. After1994, the revised rate decline was significantlysteeper than the published rate.

A key reason for sharper decline is that inthe late 1980s and early 1990s, the proportionof mutual fund distributions in personal incomewas relatively small and therefore its exclusionin the revised rate did not lower the saving ratesignificantly. However, in the last four years,capital gains from mutual funds skyrocketed asa percentage of personal income, so theexclusion of capital gains (in the reviseddefinition) reduced personal incomedramatically, thus resulting in a sharp declinein the personal saving rate. For instance, in1994, the published rate was 4.2 percent andthe revised rate was 3.5 percent, a difference ofonly 0.7 percentage points. However, in 1998,the published rate dropped to 3.0 percent andthe revised rate dropped to only 0.4 percent, adifference of 2.6 percentage points.

After the comprehensive revision ofOctober 1999, the personal saving rateincreased by 2.1 percentage points in 1983 and3.2 percentage points in 1998. Figure 2 showsthe previously published saving rate, the raterevised in July 1998 after the exclusion ofmutual fund distributions, and the current rateafter the comprehensive revisions in October1999.

Fig. 2: Personal Saving Rate (%)

0

2

4

6

8

10

12

1984

1986

1988

1990

1992

1994

1996

1998

Revised (July 1998)

Revised (Oct. 1999)

Previously Published (Prior to Revisions)


The FOFA Approach

An alternative measure of the personalsaving rate that frequently receives attentionwhenever the NIPA saving rate declines to anew low is computed by the Federal Reserveand reported in the Flow of Funds accounts(FOFA). The FOFA measure of personalsaving, unlike the NIPA measure, is defined asnet additions to wealth from one period toanother. In this concept, household savingequals net acquisition of financial assets (cash,bank deposits, stocks, bonds, life insurance,and pensions, and so on) plus net investment intangible assets (residential structures, fixedassets, and consumer durables, and so on) lessnet increase in liabilities (mortgage debt, loans,and others).

Neither realized capital gains (from sale ofstocks or a house, etc.) nor unrealized gains(accrued on paper) are included in the NIPA orin the Flow of Funds definition of wealth.10

10 In NIPA, the “realized” gain is considered as anexchange of one asset for another; the“unrealized” gain does not count in assets butsimply increases the perceived purchasing powerof the asset holder. Since neither (realized andunrealized) type of gain represents returns from

The FOFA personal saving rate is the ratio ofnet additions to wealth to personal disposableincome.

The Differences between the TwoApproaches

The two saving rates differ conceptually inmany ways, but three important differences arelisted below.

First, NIPA and FOFA measures differ intheir treatment of consumer durable goods.For instance, FOFA treats acquisition ofconsumer durables (that is, automobiles, majorhousehold appliances, etc.) as a form of saving,and services from these goods as consumption,whereas NIPA treats consumer durableexpenditures as personal consumption. Asregards housing, NIPA treats spending onowner-occupied housing as personal saving,taking the imputed value of net rental incomeas part of personal income. FOFA, on the otherhand, considers only equity in the home aswealth, and mortgage payments as long-termliabilities. The NIPA and FOFA concepts ofpersonal saving are compared in Diagram 1.

Second, the FOFA and NIPA measurestreat private pensions differently. The NIPAincludes employee contributions to 401(k)plans and pensions as part of wages andsalaries, and employer contributions as otherlabor income. To avoid double counting,NIPA income excludes both pension benefitsand withdrawals from IRAs. Individualcontributions to IRAs and Keoghs are countedas personal saving, and therefore withdrawalsdo not count as personal income. Unfundedpensions (in NIPA) are not counted as personalsaving. Likewise, contributions and earningsof government pensions and insurance fundsare not treated as personal savings, so benefit production or increases in productive capacity,they are not included in the calculation of personalsaving.

payments are treated as personal income whenreceived. Before the October 1999 NIPArevisions, the accumulation in governmentpension funds was assigned to the governmentsector. After the revisions, however, suchpensions are included in the personal sector.Private pension funds are assigned to thehousehold sector.

Diagram 1: NIPA versus FOFA

Personal Saving

Third, Social Security contributions inNIPA are counted in personal taxes, not aspersonal saving, so Social Security benefits arecounted as personal income. FOFA, on theother hand, counts both private and governmentpensions, and life insurance reserves as

Personal Saving

NIPA(Point inTime)

FOFA(During a Year)

Personal Income Less Personal consumption; Less Personal income tax; Less Tax on all capital gains distributions; Less Interest paid to business.

Net acquisition of financial assets: bonds securities, mutual funds, cash and bank deposits;Plus Value of tangible assets: Residential (including farms), fixed assets, and durable goods;Plus life insurance, private pensions, govt. insurance and pensions; Less Liabilities: Long- term and short-term.

Personal Saving Personal Saving Rate = _______________________

Personal Disposable Income

household saving.11

One can arrive at the NIPA’s concept ofpersonal saving using FOFA data. Deductingnet contributions to government insurance, netinvestment in consumer durables, and netsavings by farm corporations from the FOFAmeasure of saving produces the NIPAdefinition of personal saving.12 As notedearlier, both the NIPA and FOFA measuresexclude capital gains.

Since the in-depth analysis of the FOFAmeasure of personal saving is beyond the scopeof this paper, we will focus mainly on NIPA’smeasure.

REASONS FOR DECLININGPERSONAL SAVING RATES

Even though measured differently, the long-term trends in the NIPA and the FOFApersonal saving rate turn out to be quitesimilar. Both have declined significantly overthe last 15 years. Their trend lines follow asimilar path, although the NIPA measure fallsmore steeply after 1995. The FOFA personalsaving rate (see Figure 3) declined from 11.7percent in 1992 to only 5.1 percent in1997the lowest rate since 1946 when theFederal Reserve series began and increasedto 5.6 percent in 1999.13 In contrast, the NIPArevised saving rate declined from 8.7 percent in1992 to 2.5 percent in 1999 (and is projected todecline to 1.8 percent in 2000).

11 Before the October 1999 revisions, expenditureson R&D and software were counted as businessexpenses. After the revisions, such spending iscounted as investment, causing the gross savingrate to increase. Similarly counting saving by soleproprietorships and partnerships as personalsaving relies on a thin distinction. These might betreated as business saving.12 U.S. Federal Reserve Board (1999).13U.S. Federal Reserve Board (2000a) andMacroeconomic Advisers(1999a).

Fig. 3: Personal saving Rate (%)

0

2

4

6

8

10

12

14

16

18

1976

1979

1982

1985

1988

1991

1994

1997

FOFA

NIPA (Revised Oct. 99)

Source: Federal Reserve Board, and BEA

The Recent Decline in the NIPA’s PersonalSaving Rate

The recent decline in NIPA’s personalsaving rate can be explained by using the sameratios as shown in Box 1. While the BEA’sexclusion of capital gains reduced personalincome, consumption expenditure did notdecline. This reduced the ratio of personalsavings to income even further than BEA’sintended revision.

As a practical matter, consumptiondepends on both income and wealth.Therefore, as individuals accrue capital gainsfrom their mutual funds, they view these gainsas additions to their wealth and hence increasetheir consumption in response to capital gains,a behavioral phenomenon known as the wealtheffect. The increase in wealth generated bycapital gains also offsets individuals’ need tosave out of personal income, and thereforereleases for consumption expenditure incomethat would otherwise have been saved. WithBEA’s recent revisions of personal income, theexclusion of capital gains from mutual fundsreduces personal income (Y) but consumption(C) keeps rising in response to the wealth

effect. And this is the main reason for thedecline in personal saving. Personal saving(defined as S = Y - C) diminishes fromboth ends: Y declines as a result of theexclusion of mutual funds distributions,while C continues to rise on account of thewealth effect. Hence, the ratio ofconsumption to income (C/Y) continues toshow a rising trend while that of saving toincome (S/Y, which is 1 - C/Y), morecommonly known as the saving rate, showsa sharp decline. This sharp decline hasbeen tempered by the latest revision, whichadds contributions to governmentretirement plans to personal income.

In the NIPA definition, income (Y) ismeasured as personal disposable income,calculated by subtracting personal taxesfrom personal income. When BEAdecided to exclude mutual fund gains frompersonal income, personal taxes stillincluded taxes on capital gains, includingthe capital gains on these mutual funds. (Itis ironic that personal taxes on realizedcapital gains are subtracted from income,because such gains were never part of theincome to begin with.) These taxes, whichhave been substantial in the booming stockmarket of the 1990s, have reducedpersonal disposable income even more, andhave resulted in a further decline in thepersonal saving rate. (For mathematicalderivation, see Appendix 1: TechnicalSection.)

The ratio of consumption to personaldisposable income remained fairly constantuntil 1980, but has risen since then. In1998, real personal consumption jumpedby 4.7 percent, the highest increase sincethe early 1980s. This contributed to asignificant decline in the personal savingrate in the late 1990s.

Reasons for the Long-Term Decline in thePersonal Saving Rate

The long-term decline in the personalsaving measure—over the last two decadesislargely due to five factors: rising consumption;the wealth effect; increased transfer payments;shifts from traditional saving instruments, likebank deposits, to higher risk instruments, suchas stocks, bonds, mutual funds, and options;and rising consumer credit card debt (Browneand Gleason, 1996).

Increased Consumption

NIPA-measured saving declined in thelast two decades because of increasedconsumption of services (from 32 percent ofpersonal income in 1959 to 46 percent in1995), particularly medical services, whichrose from 4.2 percent of personal income in1959 to 12.9 percent in 1995. Rising medicalprices accounted for much of the increase.Steep increases in the costs of education,recreation, personal business, and housing alsocontributed to the growth of consumerspending.

Wealth Effect

In both the NIPA and FOFA measures,the “wealth effect” probably accounts for someof the long-term decline. The effect stems fromthe tendency of households to increasespending in response to an increase in the valueof their asset holdings, whether realized orunrealized. The low-inflation environment ofthe late 1990s and the rapid rise in the value ofthe stock market has resulted in an enormouswealth accumulation.

A look at the relation between the measuresof net worth and personal income between1991 and 1997 helps explain how the savingrate can fall even as net worth increases.According to the Federal Reserve Board data,capital gains increased household net worth by$1,099 billion in 1991, or one-fourth of

disposable personal income. In 1997, thesegains increased household net worth by $3,445billion, or three-fifths of disposable personalincome. Even though wealth can increasewithout an increase in capital gains, the growthin net worth surpassed the growth in personalincome during most of the 1980s and 1990s.Therefore, even as the saving rates fell, theratio of household net worth of equities topersonal disposable income increased. In1998, household net worth of equities ($12.7trillion) was twice that of current disposablepersonal income ($6.3 trillion) as shown inFigure 4a.

Fig. 4a: Net Worth of Equities and Disposable Personal

Income ($ Trillion)

0

2

4

6

8

10

12

14

16

18

1987

1990

1993

1996

1999

2002

2005

2008

DPI

Net Worth

Source: Macroeconomic Advisers

How large is this wealth effect? Theanswer depends on the proportion of wealthspent on consumption. According to oneestimate, households consume, on average,about 6 cents of every new dollar of networth—a small but nevertheless significantproportion.14 With the household net worth ofcorporate equities rising sharply in the 1990s,the ratio of household net worth of equities topersonal income has reached its highest level inthe last 50 years.

14 The marginal propensity to consume (MPC) is0.64 out of labor income, 0.13 out of asset income,and almost 1.0 out of transfer income (Source:Macroeconomic Advisers’ Model).

If the NIPA personal saving rate isrecalculated to include all capital gains inpersonal income, it would be 11.4 percent in1991, 10.2 percent in 1994, and 7.3 percent in1998 (Fig. 4b). Hence, if one includes capitalgains in personal income, the personal savingrate has declined, but not precipitously, fromits 1982 level of 10.9 percent.

Fig. 4b: Personal Saving Rate with Wealth Effect (%)

0

2

4

6

8

10

12

14

1991

1993

1995

1997

1999

2001

2003

2005

2007

NIPA Personal Saving Rate


(with capital gains)


Figure 4b shows these two personal savingrates: one, as measured by NIPA currently,and the other—an alternative personal savingrate—that includes capital gains (or losses) indisposable personal income.15 Gale andSabelhaus (1999) also estimated an alternativesaving rate by adjusting NIPA’s rate forretirement accounts, investment in durablegoods, and inflation. Their adjusted savingrate was 8 percent in 1986, 5 percent in 1990and 4 percent in 1998.

15 Alternative personal saving rate = (disposablepersonal income + capital gains or losses -consumption) / (disposable personal income +capital gains or losses). These calculations arebased on the Macroeconomic Advisers’ recursivemodel.

Transfer Payments

The long-term decline in the saving ratealso stems from increases in governmenttransfer payments, which discourage manyhouseholds from saving.16 Federal transferpayments to persons (in current dollars)increased from $27.5 billion in 1960 to $81.8billion in 1970, $219.0 billion in 1980, $445.3billion in 1990, and $743.7 billion in 1999.Transfer payments for government-providedmedical care (Medicare and Medicaid) andSocial Security benefits tend to increase therate of personal income growth more than therate of GDP growth for two reasons. First,transfer payments are part of personal income,but not part of GDP. Second, households savevery little from such transfers. Out ofnecessity, most recipients of transfer paymentconsume virtually all of these payments.Personal consumption as a share of GDP grewfrom 62 percent in the 1970s to 65 percent inthe 1980s, and to 68 percent in the 1990s.Government transfer payments (or governmentdissaving) helped finance this increase inpersonal consumption.

Consumers’ Saving Patterns

Changes in consumer saving instrumentshave also contributed to the long-term declinein the personal saving rate. Since the 1980s,consumers have radically changed the form oftheir savings. Traditionally, most consumerssaved in the form of bank deposits and tangibleassets, such as housing. Yet consumers nowinvest in mutual funds most of the funds thatwere once held in bank deposits. Growinginvestment in mutual funds, however, did notfully compensate for the decline in bankdeposits until the mid-1980s. In the last tenyears, individuals’ direct investment incorporate equities has even exceeded the inflowto mutual funds.

16 See Aaron and Reischauer (1999).

Deeply intertwined with the economy,stock market investment by the public hasreached historic highs. According to FederalReserve Board studies, nearly half of Americanhouseholds (48.8 percent) now have someexposure to the stock market, either throughdirect ownership of shares, through mutualfunds, or through the nearly ubiquitous 401(k)retirement plans. Individuals now hold morethan half of all stocks and another 20 percent inmutual funds. More than a third of householdsnow have money in mutual funds, while morethan 28 percent of household assets are instocksthe highest level since the FederalReserve began keeping figures after WorldWar II.17 Despite a ballooning increase inmutual funds, the personal saving rate has notimproved, because some of the increase isattributed to a shift from traditional forms ofsavings to mutual funds. For example, over 90percent of the total new investment in mutualfunds consists of transfers from retirees andnear-retirees switching from traditional savingsaccounts, GICs, annuities, and bankcertificates of deposit into mutual funds.Secondly, as contributions to mutual fundsincreased, the capital gains in thoseinvestments, as noted earlier in the discussionof the wealth effect, encouraged personalspending: personal saving (as a residual)therefore declined.

Another form of saving is household netinvestment in housing. Due to rising housingprices over the last 20 years, consumermortgage debt and other credit liabilities havefully offset any new investment in housing,thus adding virtually nothing to the productivecapacity of the economy. Using the FOFA’sanalytic perspective, investment in housingshows a decline in the acquisition of net assets.

The change in saving vehicles also affectedinvestment in the economy. When personalsaving was traditionally held in the form of

17 Federal Reserve Board (2000b).

bank deposit accounts, saving immediatelymade funds available for investment and henceincreased productive capacity (Browne andGleason, 1996). Investment and saving wereclosely aligned. Capital gains, however, do notimmediately make resources available forinvestment and pose more risk than do bankdeposits.18 Similarly, appreciation ofresidential housing (for example, in the FOFAmeasure) does not automatically raise nationalinvestment or productive capacity of theeconomy.

Credit Card Borrowing

Another reason for the long-term declinein the personal saving rate is that manyindividuals have been borrowing aggressivelyon their credit cards and other creditinstruments like home equity loans. Someindividuals even borrow on their credit cards toinvest in stocks. Consumer credit, excludingmortgages, has skyrocketed from $3.9 billionin 1992 to $69.5 billion in 1998, and theamount of consumer credit owed has increasedfrom $984 billion in 1994 to $1,289 billion in1998.

Credit card use by consumers with annualincomes of less than $15,000 increased from28 percent in 1983 to 44 percent in 1995.Credit balances (the part of the credit card billthat consumers choose not to pay offimmediately), actually increased more in higherincome groups (than in middle and lower),contrary to the conventional wisdom. Theoutstanding credit card balance as a share ofincome increased from 0 to 1 percent between1989 and 1995 for median income households;it increased from 3 percent to 6 percent for

18 Between 1991 and 1995, corporations issued$400 billion equities (new stocks) but the risingstock market valued them by $2,500 billion. If theproductive capacity of the economy fails toincrease at a pace equal to the valuation of stocks,the stock market is likely to correct itself, andstock prices would drop abruptly.

households in the 75th income percentile; andfrom 14 percent to 22 percent for households inthe 95th income percentile (Economic Report ofthe President, 1998).

NATIONAL PERSPECTIVE:GROSS SAVING

This section discusses the role thatpersonal saving plays in gross saving, morecommonly known as national saving. NIPAequates gross saving with gross investment inthe economy (domestic and foreign), and thisparity is important for a stable macroeconomicequilibrium. Whenever national saving fallsshort of required investment, capital inflowsand foreign investment fill the gap. Grosssaving is the sum of personal saving, businesssaving, and government saving. Governmentwage and salary accruals less disbursementsare added to gross private saving to adjust forthe retroactive wage payments (see “Glossaryof Terms” in Appendix 2).

Business saving, as shown in Diagram 2,consists mainly of three parts: unsold stock(inventory), undistributed corporate profits,and a capital consumption allowance (alsoknown as a depreciation allowance). Thecorporate capital consumption allowance is thelargest share (75 to 85 percent) of gross privatesaving.19 Government saving, on the otherhand, comprises the combined surpluses (ordeficits) of federal and state and localgovernments plus the capital consumption offederal, state and local, and governmententerprises ( such as the U.S. Postal Service), aconcept analogous to businesses.

19 The NIPA calls the depreciation charge the“capital consumption allowance.” For details seeU.S. Department of Commerce. Bureau ofEconomic Analysis (1998a). For brief definitionsof components of gross saving, see also Appendix2 of this paper.

Diagram 2: Components of Gross Saving

Over nearly three decades, the compositionof gross saving has changed dramatically. In1970, 29 percent of gross saving was frompersonal saving, 53 percent from businesssaving, and 18 percent from government saving(see Figure 5a). In 1999 (fourth quarter) only9 percent of gross saving was from personalsaving, 69 percent was from business saving,and 23 percent was from government saving(see Figure 5b).

BEA’s redefinition of personal income,both in August 1998 and October 1999, merelyshifted some saving from the personal saving tothe business saving category. An increase inbusiness and government saving effectivelyoffset the decline in personal saving.

Fig. 5a: Composition of Gross Saving in 1970

Business Saving

53%

Personal Saving29%

Govt. Saving18%


Fig. 5b: Composition of Gross Saving in 1999

Personal Saving

9%

Business Saving

69%


Govt. Saving 23%

Trends in the Gross Saving Rate

The national saving rate has declinedsomewhat in the last three decades but not asmuch as generally believed. During the early1960s, when the gross saving rate was 21percent, the federal government ran smallsurpluses, and private saving contributed thelargest share of national saving. In the 1970s,1980s, and as late as the early 1990s, however,the federal government ran huge deficits andthe gross saving rate fell from 20.7 percent in

Gross Saving

Government Saving

Personal Saving

Undistributed corporate profitsplus corporate inventory valuationplus corporate capital consumption allowance w/ adjustments

Gross Private Saving

Business Saving

Government wage and Salaryaccruals less disbursements

Personal Income lessconsumption less taxesless personal interestpayments

1959, to 18.6 percent in 1970, and to 16.9percent in 1995.20 Since the mid-1990s,national saving has been rising and reached18.3 percent of GDP in 1997. This rise islargely due to declining federal budget deficits.The federal unified budget surplus in1998the first in thirty yearsadded to thenational saving rate. According to governmentbudget forecasts, for the next 20 years,projected federal surpluses will make theirlargest sustained contribution to nationalsaving since World War II. The federalcontribution to national saving is particularlyimportant today, because personal saving hasdried up and business saving will probablygrow much less rapidly than it has since 1990.

Although gross saving (in current dollars)increased over eightfold since 1971, from$205.3 billion to $1,745.2 billion in 1999, itsratio to GDP, that is, the national saving rate,after a brief decline between 1990-1993 has 20 Clearly, while gross saving as a percent of GDPhas experienced a modest decline since 1970, themagnitudes of the components of gross savinghave shifted dramatically; the decline in personalsaving has been offset by the explosion of businessand government saving (see Figures 5a and 5b).

reached its 1971 level of 18.6 percent (seeFigure 1 and Box 2). The personal saving rate(ratio of personal saving to disposable personalincome) has declined from 10 percent in 1971to only 3.7 percent in 1998 and 2.2 percent in1999 (fourth quarter).

ECONOMIC FORECAST

This section presents the short-term savingrate forecasts for 1998 to 2008 based on theMacroeconomic Advisers (MA) model. Thepresent simulation assumes no changes in theFederal Reserve’s monetary policies.

What Implications Do Current Trends inSaving Have for the Future?

Using the MA model,21 one can estimategross saving, business saving, personal saving,and government saving .

The model projects that gross privatesaving (in current dollars) will rise from$1,371 billion in 1998 to $2,244 billion by2008 (see Figure 6). The model also projectslimited growth in personal savingfrom $164billion in 1999 to $370 billion by 2008. Themodel also predicts, however, that federalbudget surpluses will rise from $121 billion in1999 to $588 billion in 2008, and combinedsurpluses of federal and state governments to$674 billion by 2008boosting the grosssaving in the economy from $1,730 billion in1999 to $3,204 billion by 2008.

21 The Research Group of AARP is a licensed userof econometric simulation model of theMacroeconomic Advisers, LLC, St. Louis.

Box 2: Components of Gross Saving

1971/Q1 1999/Q4 ($ Billion) ($ Billion)

Gross Saving 205.6 1,745.2Gross Private Saving 193.8 1,366.4 Personal Saving 77.4 152.1 Business Saving 116.4 1,214.3Government Saving 11.8 378.7

Gross Saving/GDP (%) 18.6 18.6

Personal Saving/Disposable Personal Income (%) 10.0 2.2


Fig. 6: Gross Saving and Its Components ($ Billion)

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350019

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Gross Private Saving

Business Saving

Personal Saving

Govt. Saving


Saving Rates

An increase of $1,558 billion in grosssaving (in current dollars), will increase itsshare in GDP from 18.8 percent in 1998 to21.3 percent by 2008, while the share of grossprivate saving (personal saving plus businesssaving) in GDP will decline from 15.7 percentin 1998 to 14.7 percent by 2008. BEA’srevised personal saving rate will decline from3.7 percent in 1998 to 1.8 percent 2001, andthen gradually rise to 3.4 percent by 2008 (seeFigure 7).

Components of Gross Private Saving

Although personal saving’s share of grossprivate saving has not been high historically,BEA’s revised definition, along with the otherfactors discussed earlier, has reduced its sharefrom 35 percent of gross private saving in the1980s to 24 percent in 1992, 15 percent 1998,and 8 percent in 2000. However, with therevised definition, personal saving is projectedto rise again to 14.5 percent by 2008 (seeFigure 8). The capital consumption allowance

(depreciation fund) constitutes the largest shareof gross private saving, about 80 percent, whilethe undistributed corporate profits sharerepresents from 10 to 15 percent.

Fig.7: Gross, Private, Personal and Govt. Saving Rates (%)

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25

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Gross Saving Rate

Gross Private Saving Rate


Govt. Saving Rate


Fig. 8: Composition of Gross Private Saving

0%

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Capital Consumption+Adj.

Undistributed Profits

Personal Saving


Corporate Profits

The annual growth in corporate profits, asshown in Figure 9, was negative in 1998,

turned positive in 1999, but will probably dipagain in 2000. The model projects thatcorporate profits—basically equivalent tobusiness saving—will rise only 1 percent in2000, 2 percent in 2001, 5 percent in 2005, andover 6 percent by 2007 before declining; after-tax profits, in dollar terms, will gradually risefrom $580 billion in 1999 to $820 billion by2008.22

Fig. 9: Corporate Profits

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% Annual Growth (left scale)

Profits ($ billion)(right scale)


Low Personal Saving Rate and ForeignInvestment

In NIPA , as mentioned above, overallinvestment in the United States. economy bydefinition has to be equal to gross saving (seeBox 1). Foreign assets currently fund a majorportion of investment in the U.S. economy.The decline in domestic investment has beenoffset by net foreign investment.23 In the

22 Evidence of negative annual growth incorporate profits was the stock market plunge inthe third quarter of 1998, and an immediate cut ininterest rates by the Federal Reserve.23 Gross investment declined from 20.9 percent in1960 to 18.8 percent in 1998. A third of thedecline was attributable to falling domesticinvestment, and two-thirds to lower expenditures

1960s and 1970s, the United States was a netinvestor to the rest of the world; in the 1980sand 1990s, the United States became a netborrower, relying upon the saving of othercountries. In the past three years this annualincrease in America's internationalindebtedness has skyrocketed to well over $200billion per year. Just like the ever- falling levelof personal saving, an ever-rising internationalindebtedness is equally an important concernfor the economy.

Fig. 10: Net Foreign Investment ($ Billion)

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As shown in Figure 10, net foreigninvestment is negative—meaning othercountries are investing more in the U.S.economy than the United States is investingabroad.24 It also means that the nation’sproductive capacity and the income generatedby the economy are partly devoted tosupporting foreign consumption rather thandomestic consumption. Foreign investment inthe United States grew substantially in theearly 1980s, reaching $10.7 billion in 1982 and$130 billion in 1986. In 1999 this investment of the federal (defense, etc.), state, and localgovernments.24 Net foreign investment comprises net exportsless federal interest payments to foreigners lesspersonal transfers to foreigners. Net foreigninvestment plus gross domestic investment equalsgross investment.

ran $316 billion and will probably reach $440billion in 2002 before declining to $266 billionby 2008.

CONCLUSION

The steady decline in the NIPA personalsaving rate has puzzled many observers of theeconomy because it has persisted even during adecade-long economic boom. The decline hasraised numerous questions about whetherAmericans save even less than many hadthought for both retirement and financialemergencies. Many policy makers worry thatthe decline will also negatively affect theoverall economy by reducing the investmentneeded to increase productivity, raise standardsof living, and promote economic growth.Growth makes it easier to save and to affordthe costs of private and public retirementprograms, including Social Security andMedicare.

Some policy makers have expressedespecially strong concerns about BEA’s 1998revisions that plunged the personal saving rateinto negative territory. Yet while BEA’sOctober 1999 comprehensive revisionsproduced significantly higher personal savingrates for 1998 and previous years, they did notreverse the downward trend. This suggests thatinterpretation of any technical revision to thisstatistic, or to any other government statisticthat is frequently or regularly revised, requiresa cautious rather than a crisis reaction.

An examination of BEA’s latest tworevisions (July 1998 and October 1999)indicates there is no immediate cause for alarm.The July 1998 revision of the NIPA personalsaving rate pushed the rate into negativeterritory. It was a statistical aberration and didnot affect the economy to an extent thatwarrants alarm. In terms of national saving,the BEA’s redefinition of mutual funddistributions merely shifted saving from the

personal saving to the business saving categoryand therefore had no impact on gross nationalsaving. BEA’s October 1999 revision, whichproduced a significantly higher personal savingrate for 1998, further challenges the notion thata short-term saving problem exists.

There appears to be no cause for alarm inthe long-term personal saving either. Eventhough both official measures of the personalsaving rateBEA and Federal Reserveshowa long-term decline, neither of these measuresincludes capital gains. If capital gains areincluded in personal income, the saving ratehas declined only marginally from its 1982level. There are, however, other concerns.Personal saving, if measured by includingcapital gains, is highly volatile and subject tomarket fluctuations. As long as stock pricesparallel the growth in productive investment,future growth in consumption can besustained.25 There are also concerns that onlythose in the upper-half of the incomedistribution invest in the stock market and,therefore, such accumulations of gains shouldnot be attributed to all segments of thepopulation.

In addition, with respect to personal well-being, NIPA’s personal saving rate may be toonarrow to measure how well off consumersbecome by acquiring market equities. Perhapswe need to broaden the scope of the NIPAsaving rate further by providing alternativemeasures of personal saving: one measurebased solely on the current definition (whichnow includes private pensions and governmentretirement plans) and other measures thatinclude capital gains. For instance, in the caseof the Consumer Price of Index (CPI), theBureau of Labor Statistics measures cost of

25 Incidentally, investment in new capital isrestrained because business saving is used upincreasingly (75 to 80 percent) in replacing theshort-lived equipment. However, investment inR&D and Internet, etc. is treated in NIPA as acurrent expense instead of a capital expense.

living for different segments of the population,and the CPI is reported with and withouthousing prices separately.

In terms of national saving, there is nocause for immediate alarm, but again somecause for concern. The long-term decline in thepersonal saving rate has lowered the overallgross saving rate. If increased government orbusiness saving does not offset the decline inpersonal saving, there will be less investment,lower productive capacity, and lower economicgrowth. Recently, national saving has beengrowing mainly as a result of increasedbusiness and federal government saving(declining deficits followed by growingprojected surpluses). But uncertainty alwayslooms in such projections, and future surplusesare not guaranteed. The current unified budgetsurplusmainly due to off-budget SocialSecurity revenues in excess of annualpayments would help reduce the public debt,interest paid on debt, and interest rates in thelong run.

The gap in domestic investment iscurrently being filled by foreign investment.However, the disadvantage of relying onforeign saving, besides sharing the fruits ofinvestment with other countries, is that foreigninvestment is highly vulnerable to the ups anddowns of foreign currencies and foreigneconomies.

APPENDIX 1: Technical Section

Before the BEA’s revision of the personalsaving rate, personal disposable income (PDI)included labor income, interest income, andcapital gains from mutual funds. PDI lesspersonal consumption expenditure (PCE) wasdefined as personal saving, and its ratio to PDIwas the personal saving rate. BEA’s newdefinition excludes capital gains from mutualfunds in PDI, but personal taxes still includetaxes on all capital gains, including the taxeson mutual fund distributions.

To analyze the impact of the exclusion ofmutual funds and tax on capital gains on thesaving rate, we use the MacroeconomicAdvisers’ mathematical approach. Letpersonal saving (S) be defined as income (Y)less consumption (C): (1) S = Income - Consumption

Reported personal disposable income (beforeBEA’s revisions) included wages and salaries(Y), and some portion, α, of capital gainsrealizations, R. These realized gains camefrom the mutual fund industry that NIPA hasproposed to exclude from personal income.Hence, saving (S) can be written as:

(2) S = Y - tY Y + αR - tG R - C

where tY and tG are tax rates on income andrealized capital gains respectively. Or,

(3) S = (1- tY ) Y + (α - tG ) R - C

Turning to consumption, under life cycleassumptions, personal consumption (C)depends on after tax personal income; capitalgains accrued (G) during a period less taxespaid on realized portion of gains; and the netwealth (W) at the beginning of the period.Hence, we can rewrite (3) by breaking C intoits components,

(4) S = [(1 -tY) Y + (α - tG)R] - [β1(1 -tY)Y + β2(G- tG R) + β3W]

where β1, β2, and β3 are marginalpropensities to consume out of income, capitalgains, and net wealth respectively.

From the saving equation (4), it is evidentthat NIPA saving is affected by both wealthand capital gains. It involves two variables:the proportion α of the mutual fundsdistributions in total capital gains, and thecapital gains tax, tG, on the realized portion ofgains. If they are both small, then the impacton the saving rate will be small. Since the taxrate on capital gains (tG) has historicallyexceeded the proportion of capital gainsrealized (α), there has been a downward bias inthe measurement of saving even before theBEA’s revisions because the coefficient of R in(4) is negative (α < tG).

With BEA’s revisions, personal saving isreduced from two sides. First, as wealthincreases, consumption increases since β2 >0,and therefore it reduces personal saving (S).Second, if mutual fund distributions wereexcluded in accordance with BEA’s newdefinition (that is, α = 0) the personal tax thatincludes taxes on all realized capital gains(including gains on mutual funds) would stillreduce personal disposable income by - tG R(the second term of the first squareparenthesis), and would reduce overall personalsaving. The downward bias is directly relatedto the wealth effect; the greater the increase inwealth (mutual funds), the higher theconsumption, the lower the measure ofpersonal disposable income, and the lower theNIPA saving rate.

It is worth noting that the proportion ofgains realized is not insignificant. Recently,the proportion of personal dividends reportedby the mutual funds industry experienced anenormous growth. The total realizations, at

current prices, increased from $50 billion in1984 to $156 billion in 1988, then decreased to$100 billion in 1990 due to recession. Since1990-91, realized gains have skyrocketed andwere $278 billion in 1997. The growth inmutual funds also shows a similar pattern; theircapital gains distributions accounted for 17percent of the total gains in 1995 and 22percent in 1997 (Macroeconomic Advisers,The U.S. Economic Outlook, August 1998).

The tax rate has always been greater thanthe proportion of realizations from mutualfunds distributions (tG > α). The tax rate oncapital gains, including state taxes, exceeds theshare of mutual funds in total gains distributed.The tax rate on capital gains rose from 20percent in 1981 to 28 percent in 1987 after theTax Reform Act. Thus, when mutual funddistributions from personal income wereexcluded in BEA’s new definition, the capitalgains taxes reduced personal income by asmuch as the amount of taxes paid on realizedgains, tG R.

APPENDIX 2: Glossary ofTerms*

Undistributed profits is the portion ofcorporate profits not paid out in dividends.

Change in business inventories and inventoryvaluation adjustment. Business inventory isthe physical volume of unsold goods valued ataverage prices to determine corporate profitsbefore tax. Change in business inventoriesmeasures the change from one period toanother. It differs from the change reported inthe book-value of inventories at the end of theperiod, which is based on actual replacementcosts and actual prices. The difference is theinventory valuation adjustment.

Consumption of fixed capital and capitalconsumption adjustment. Capitalconsumption is a charge for the using up ofprivate and government fixed capital located inthe United States. To replace the worn out andobsolete fixed capital, all firms keep aside a

fund called a depreciation fund. This fund isbased on historical prices of used equipmentand structures in resale markets. Capitalconsumption adjustment is the differencebetween the historical cost-based depreciation,as calculated and reported by BEA, and the taxreturn-based depreciation calculated by usingactual prices, and reported to IRS.

Government wage and salary accruals lessdisbursements. Wage and salary accruals aremonetary compensations earned.Disbursements are wage and salary accrualsexcept that retroactive wage payments arerecorded when paid rather than when earned.Wages accrued (earned) are part of nationalincome, and wages disbursed (paid) are part ofpersonal income.____________________________________* Source: NIPA of the United States (1998). Thecomposition of gross saving for the year 2000 isshown below in Box 3.

Box 3: Projected 2000 1st Quarter Savings$ Billion % Share

Gross Private Saving 1362.4 77% Personal Saving 133.2 8% Gross Business Saving 1,229.1 70% Undistributed profits 194.2 11% Inventory valuation adjustment -9.8 -1% Capital Consumption adjustment 63.1 4% Corporate Consumption of Fixed Capital 692.3 39% Non-corporate Consumption of Fixed Capital 289.3 16% Wage accruals less disbursement 0.0 0% Government Saving 404.9 23% Federal Surplus (Deficit) 156.0 9% State & Local Surplus (Deficit) 49.4 3% Capital Consumption 169.5 10% Federal 86.0 5% State & Local 83.5 5% Govt. Enterprises 30.1 2% GROSS SAVING 1,767.30 100% % of GDP 19.2% Source: Macroeconomic Advisers Economic Outlook, January 8, 2000.

REFERENCES

Aaron, Henry J., and Robert D. Reischauer. 1999.Countdown to Reform: The Great Social SecurityDebate, Washington DC: Brookings InstitutionPress.

Browne, Elaine L., and J. Gleason. 1996. “TheSaving Mystery, or Where Did the Money Go?”New England Economic Review(September/October): 15–27.

Gale, William G., and J. Sabelhaus, 1999.“Perspective on the Household Saving Rate.”Brookings Paper on Economic Activity (March):10–25.

Macroeconomic Advisers, LLC. 1998. The U.S.Economic Outlook, A Monthly Forecast Update(August 19). (www.macroadvisers.com)

_________. 1999a. Macroeconomic Advisers’Economic Outlook, A Monthly Forecast Update 17,no. 6, (July 10).

_________. 1999b. Macroeconomic Advisers.Economic Outlook, A Monthly Forecast Update 17,no. 9, (October 18).

Rippe, Richard D. 1999. “No Saving Crises in theUnited States.” Business Economics 34, no. 3(July).

U.S. Congress. 1998. 1998 Economic Report of thePresident Transmitted to the Congress, U.S.Government Printing Office: Washington, DC.

U.S. Congress. Congressional Budget Office. 2000.The Economic and Budget Outlook: 2001-2010,U.S. Government Printing Office: Washington, DC.(www.cbo.gov)

U.S. Department of Commerce. Bureau ofEconomic Analysis. 1998a. “Definitions andClassifications Underlying the NIPA.” NationalIncome and Product Accounts of the United States,1929–94: 1 (April): M1–21(Source: www.bea.gov)

_________. 1998b. “Updated Summary of NIPAMethodologies,” Survey of Current Business,(September).

_________. 1999a. “A Preview of the 1999Comprehensive Revision of the National Incomeand Product Account. Definitional andClassificational Changes,” by Brent R. Moulton,Robert P. Parker, and Eugene P. Seskin. Survey ofCurrent Business, (August).

_________. 1999b. “Improved Estimates of theNational Income and Product Accounts for 1959–98. Results of the Comprehensive Revisions,” byEugene P. Seskin, Survey of Current Business,(December).

_________. 1999c. “Note on the Personal SavingRate,” by Daniel Larkin. Survey of CurrentBusiness, (February).

U.S. Federal Reserve Board. 1999. “PersonalIncome and Saving,” Financial and BusinessStatistics, Federal Reserve Bulletin, volume 85,(December).

_________. 2000a. Flow of Funds Account of theUnited States, Annual Flows and Outstandings, Z1.Historical Data , Tables F8-F9, 1982-1990 and1990-1999, Release Date March 10, 2000.(www.bog.frb.fed.us/releases)

_________. 2000b. “Recent Changes in U.S.Family Finances: Results from the 1998 Survey ofConsumer Finances,” Federal Reserve Bulletin,volume 86, (January).

Written bySatyendra Verma and Jules LichtensteinPublic Policy InstituteMarch 2000AARP, 601 E Street, NWWashington, DC 20049Reprinting with permission only.

Web site: research.aarp.org

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