# National Savings Rate & National Savings Formula [Personal Saving Rate]

Written By
Written By
Dan Buckley
Dan Buckley is an US-based trader, consultant, and part-time writer with a background in macroeconomics and mathematical finance. He trades and writes about a variety of asset classes, including equities, fixed income, commodities, currencies, and interest rates. As a writer, his goal is to explain trading and finance concepts in levels of detail that could appeal to a range of audiences, from novice traders to those with more experienced backgrounds.
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## What Is the National Savings Rate?

The national savings rate is the percentage of income that households – on aggregate – save.

It’s calculated by subtracting personal consumption expenditures from personal disposable income.

The resulting number is divided by personal disposable income and multiplied by 100 to get a percentage.

The formula for calculating the national savings rate is:

National Savings Rate = (Personal Disposable Income – Personal Consumption Expenditures) / Personal Disposable Income x 100%

For example, if personal disposable income per capita is \$4,000 and personal consumption expenditures are \$3,500 per capita, the national savings rate would be 12.5%:

National Savings Rate = (\$4,000 – \$3,500) / \$4,000 x 100% = 12.5%

## Factors That Influence the National Savings Rate

There are a number of factors that can influence the national savings rate, including:

### Personal income

An increase in personal income will lead to an increase in the amount of money that households have available to save.

### Interest rates

Higher interest rates make it more attractive for households to save rather than spend their money. This can lead to an increase in the national savings rate.

### Consumer confidence

If consumers are confident about the future, they may be more likely to save rather than spend their money. This can lead to an increase in the national savings rate.

### Government policy

Government policy can influence the national savings rate through taxes and spending.

For example, if the government increases taxes, households may have less money available to save.

Alternatively, if the government increases spending, it may lead to an increase in consumer confidence and a higher national savings rate.

### 401(k) and Pension plans

401(k) and pensions plans (from work or from government-sponsored plans like Social Security) may cause people to believe that their expenses in retirement will be funded by those programs alone.

In turn, this can cause them to save less money.

### Part of the economic cycle

The part of an economic cycle may influence the savings rate.

However, it’s not purely a cyclical phenomenon. Individuals generally have roughly the same savings habits regardless of what the economy may be doing.

Nonetheless, it may also fall over the course of an economic cycle as people feel more confident. This was true during the economic cycles of the 1980s, 1990s, and 2000s.

It was also true after the Covid-19-related crash as governments helped people restore their balance sheets (and there was less spending) and those reserves were drained as the cycle wore on.

## Why is the National Savings Rate Important?

The national savings rate is an important economic indicator because it can give insights into future economic growth.

If the national savings rate is high, it may indicate that households are more fearful of the future and not spending.

This can lead to higher economic growth in the future as households will have more money available to spend.

Conversely, a low national savings rate may indicate that households are confident about the economy and willing to spend.

This can lead to lower economic growth in the future as households will have less money available to spend because they’ve eaten into their cash buffers.

## What Is Disposable Income and Why Is It Important?

Disposable income is the money that households have available to spend after taxes.

It’s an important economic indicator because it can give insights into how much money households have available to save or spend.

The disposable income of a household is calculated by subtracting taxes from total income.

For example, if a household has \$5,000 in total income and pays \$1,000 in taxes, their disposable income would be \$4,000:

Disposable Income = Total Income – Taxes

Disposable Income = \$5,000 – \$1,000 = \$4,000

### How Does Disposable Income Affect the National Savings Rate?

The level of disposable income is one of the key factors that can influence the national savings rate.

If disposable income is high, households will have more money available to save. This can lead to a higher national savings rate.

Conversely, if disposable income is low, households may be more likely to spend their money rather than save it simply because basic necessities eat up so much of their income. This can lead to a lower national savings rate.

## Average Propensity to Consume

The average propensity to consume (APC) is a measure of how much of their income households are likely to spend.

It’s calculated by dividing personal consumption expenditures by personal disposable income:

Average Propensity to Consume = Personal Consumption Expenditures / Personal Disposable Income

For example, if personal disposable income is \$4,000 and personal consumption expenditures are \$3,500, the APC would be 87.5%:

Average Propensity to Consume = (\$3,500 / \$4,000) x 100% = 87.5%

### How Does the Average Propensity To Consume Affect The National Savings Rate?

The average propensity to consume is inversely related to the national savings rate.

If the APC is high, it means that households are likely to spend a larger proportion of their income.

This can lead to a lower national savings rate because households will have less money available to save.

Conversely, if the APC is low, households are likely to save a larger proportion of their income. This can lead to a higher national savings rate.

### How Does the Average Propensity To Consume Change By Wealth Level?

Those with more tend to spend less of their income because their living expenses are simply a lower part of their income.

For instance, a plane ticket is the same price no matter what your income is. A wealthier person may buy a more expensive plane ticket than a less wealthy person, but by and large the ticket is going to consume more of a poor person’s income than a wealthier person’s.

A \$200 plane ticket is 5 percent of the monthly budget of someone who makes \$4,000 per month but just 0.5 percent the monthly budget of someone who makes \$40,000 per month.

The same goes for food. The wealthy may be able to buy more expensive or better quality food, but they’re still only going to consume a certain amount of it. Their living expenses in general are just a lower part of their income than someone with less money.

As a result, the average person’s propensity to consume falls as income rises. That is, the rich save more of their money than the poor.

## Average Propensity to Save

The average propensity to save (APS) is a measure of how much of their income households are likely to save.

It’s calculated by dividing personal savings by personal disposable income:

Average Propensity to Save = Personal Saving / Personal Disposable Income

For example, if personal disposable income is \$4,000 and personal saving is \$500, the APS would be 12.5%:

Average Propensity to Save = (\$500 / \$4,000) x 100% = 12.5%

### How Does the Average Propensity To Save Affect The National Savings Rate?

The average propensity to save is directly related to the national savings rate.

If the APS is high, it means that households are likely to save a larger proportion of their income.

This can lead to a higher national savings rate because households will have more money available to save.

Conversely, if the APS is low, households are likely to spend a larger proportion of their income. This can lead to a lower national savings rate.

### How Does the Average Propensity To Save Change By Wealth Level?

Those with higher incomes can save more than the poor because the basic necessities are a lower percentage of their income.

So the APS rises as wealth levels rise. Namely, the rich save a larger proportion of their income than the poor.

## What Are The Implications Of A High National Savings Rate?

A high national savings rate has several implications for an economy:

1. Increased investment: A high national savings rate can lead to increased investment because businesses will have more money available to invest in new projects and expansion.

2. Stronger growth: A high national savings rate can lead to stronger economic growth because there will be more money available for businesses to invest.

3. Lower interest rates: A high national savings rate can lead to lower interest rates because there will be a higher supply of funds to lend. And by and large, better economic fundamentals (better savings rate being one such measure) lead to better creditworthiness and lower interest rates.

4. Reduced trade deficit: A high national savings rate can help to reduce a trade deficit because it means that businesses will have more money to invest in domestic products and services, rather than imported goods and services.

5. Increased stability: A high national savings rate can help to increase economic stability because it provides a buffer against shocks such as recessions or financial crises.

6. Improved living standards: A high national savings rate can lead to improved living standards because it can lead to more investment, and more productivity, which can help to fund public goods and services, such as healthcare and education.

## FAQs – National Savings Rate

### What is the national savings rate?

The national savings rate is the percentage of income that households save. It’s calculated by dividing personal saving by personal disposable income.

### What factors affect the national savings rate?

There are a number of factors that can affect the national savings rate, including tax rates, interest rates, and government spending.

### What are the implications of a high or low national savings rate?

A high national savings rate has a number of implications for an economy, including increased investment, stronger growth, lower interest rates, and improved living standards.

A low national savings rate can lead to weaker growth and less stable economic conditions.

### What is the national savings rate and how is it calculated?

The national savings rate is the percentage of income that households save.

It’s calculated by dividing personal savings by personal disposable income.

For example, if personal disposable income is \$4,000 and personal saving is \$500, the national savings rate would be 12.5%:

National Savings Rate = (\$500 / \$4,000) x 100% = 12.5%

## Conclusion – National Savings Rate

The national savings rate is the percentage of income that households save. It’s calculated by subtracting personal consumption expenditures from personal disposable income. The resulting number is divided by personal disposable income and multiplied by 100 to get a percentage.

A high national savings rate has a number of implications for an economy, including increased investment, stronger growth, lower interest rates, and improved living standards. A low national savings rate can lead to weaker growth and less stable economic conditions.

The average propensity to save is directly related to the national savings rate. If the APS is high, it means that households are likely to save a larger proportion of their income.

This can lead to a higher national savings rate because households will have more money available to save. Conversely, if the APS is low, households are likely to spend a larger proportion of their income. This can lead to a lower national savings rate.