In an article last Sunday, I wrote about July’s modest increase in personal income but cautioned that looking at these aggregate statistics that include all income levels can be misleading.

First, as a quick reminder, personal income includes wages and salaries, but it also includes income from other sources like investment returns from stock dividends, Social Security payments and rental income for landlords to name a few. In fact, only about half all U.S. personal income is from wages and salaries with the other half emanating from other sources. This is why it’s important to understand where the gains in personal income are coming from and who they are going to. 

The same can be said about the U.S. savings rate. The average U.S. savings rate hovered around 14% during the 1960s and ’70s and overall has been 7.9% from the 1960s to the present day. But the general trend has been a steady decline since the ’70s other than during the pandemic when stimulus checks were sent out.

By July of this year, our savings rate stood at 3.0%. But that still begs the question of who is saving as that 3.0% is an aggregate average for all Americans.

So, our team at Data Driven Economic Solutions looked at the most recent data available and it shows that households in the top 10% of disposable income had savings rates of 47% in 2023, meaning that for every dollar they obtained in income, they saved 47 cents. Within that group, the top 5% had a 61.4% savings rate and the top 1% had an 85.7% savings rate.

By contrast, the lowest 10% had an average savings rate of negative 134%. This means expenses were higher than income for this group, which can be financed by taking on credit card or other debt, borrowing from payday loans or friends or family or drawing down from checking or savings accounts. 

Equally striking is that a negative savings rate is true for all deciles, except the top two representing the top 20% of personal income earners after subtracting taxes. And even those in the 80^th to 90^th percentile on average saved only 5% of the post-tax income. 

Averages used to tell us more about where the economy stood. But with the growing divergence in income and wealth levels, the data no longer reflects the reality experienced by many Americans.

Tatiana Bailey is executive director of the nonprofit Data-Driven Economic Strategies. Other Gazette articles, TV segments, DDES monthly economic dashboards with technical explanations and how to sponsor their work can be found at ddestrategies.org.