Mar 26, 2009

Personal investment preferences by country

Much has been said about Americans' low savings rate, usually less than 1% in recent years. As with most numbers that get a lot of press time because they sound impressive ($60 trillion in credit default swaps? Excuse me, but that's a notional value, not the actual value of the contracts), it's a misleading statistic. It doesn't count saving in 401(k)s and IRAs. It also gives too much weight to retirees who spend more than their income by selling assets in their portfolio. It doesn't account for the amortization of durable goods - if you buy a car, the entire cost is counted as spending in the year of purchase when in fact, you will likely use that car for several years. Depreciation on houses is also counted as spending and this "expense" increased substantially as house values rose. However, no credit was given to households for the appreciation of their real estate. Granted, a lot of that appreciation was phantom wealth, but even so, over the long term we should expect house values to increase roughly in line with inflation. If you're going to count non-cash expenses like depreciation then you should also count unrealized capital gains as income. Once you correct for all of these factors, Americans' savings rate is actually several points higher than the reported number.

So how do Americans invest their savings compared to citizens of other countries? Here's a graph from a slightly dated report on household investments by country. Not surprisingly, we have the highest proportion of our wealth tied up in equities.

More detailed statistics on US household investment preferences is available from the Census:

1 comment:

allan Gering said...

Three ordinal models that also included demographic and attitudinal characteristics indicate that wood-based energy is less preferred among potential investors compared to the stock market and solar/wind renewable energy investments.