Lies, Damn Lies, and Statistics

This is a guest post from Stephen Popick, a US Government Economist and long-time Forums Administrator / Guest Writer for GetRichSlowly.com.  His new series here will touch on bridging the gap between the global economy and the personal economy; understanding what statistics mean for personal fiscal planning in the next year.  Mr. Popick is a long-time swing dancer who also enjoys scootering, softball, and Civilization IV.

In this first column, I would like to touch on a statistical number that is grossly misrepresented in the pop media, how it should be interpreted, and how to apply a new understanding what it means to your personal finance planning.

Recently at GetRichSlowly.org , JD wrote about the personal savings rate (PSR).  I had previously written on the personal savings rate here , but let’s start off with what’s going on with the PSR.

The Bureau of Economic Analysis reports the PSR.  In their news releases is embedded a definition of this calculation, which isn’t what we’d think it is, since it says “Savings”.

The PSR measures:

(Personal After-Tax Income minus Personal Outlays) / (Personal After-Tax Income)

Included in Personal Outlays would be things like 401Ks, Roths, CD, Stocks, Bonds, Commodities, etc.  But aren’t these considered to be savings?  Not by the PSR, because you have to outlay cash to buy them!

In short, the personal savings rate doesn’t measure savings! It’s more a measure of cash-flow

In actuality, savings rates could be going up as we cut back on disposable consumables (likely a good thing), or it could also be that consumers have stopped contributing to the 401ks (likely a bad thing) and the real savings rate is lower.  What is known is that however we’re saving; we’re saving with less risk (and less return).

Let’s wrap this back into what it means for you, the personal finance blog reading consumer.  What you know from this statistic is that the typical American consumer is keeping more greenbacks in the bank or in their mattress (By the way, this also nicely explains why inflation hasn’t gone up much).  Further, it may mean that consumers are moving out of riskier savings vehicles and deciding to spend some money on consumables and keep the remainder in very safe low yield accounts.

For the Personal Finance blog reader, what does PSR mean to you?  For most folks, the PSR increases reflect the current uncertain economic situation and “emergency funds” are more funded these days.  Of course, if you already had a well-funded emergency fund, then you might want to consider a different reaction.  If my conjecture above is correct that investment activity is lower now as consumers substitute 401K savings or bond savings to cash-like savings, then follow Warren’s advice to “Be greedy when others are fearful”as there would be a greater chance of some good long-term investments  being sold at a wonderfully reduced price.  Further, the PSR appears to be continuing to rise. You can bank on the current economic climate continuing beyond the next 12 months pretty certainly based on this.

Next week, I’ll cover just what the real story is behind the mysterious Unemployment Rate and why it shouldn’t be used to measure how the economy is at this very moment.  Controversial statement, but I will explain it neatly.  As a teaser, did you know there are 6 different versions of it?  Which one is reported?

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Lies, Damn Lies, and Statistics

This is a guest post from Stephen Popick, a US Government Economist and long-time Forums Administrator / Guest Writer for GetRichSlowly.com.  His new series here will touch on bridging the gap between the global economy and the personal economy; understanding what statistics mean for personal fiscal planning in the next year.  Mr. Popick is a long-time swing dancer who also enjoys scootering, softball, and Civilization IV.

In this first column, I would like to touch on a statistical number that is grossly misrepresented in the pop media, how it should be interpreted, and how to apply a new understanding what it means to your personal finance planning.

Recently at GetRichSlowly.org , JD wrote about the personal savings rate (PSR).  I had previously written on the personal savings rate here , but let’s start off with what’s going on with the PSR.

The Bureau of Economic Analysis reports the PSR.  In their news releases is embedded a definition of this calculation, which isn’t what we’d think it is, since it says “Savings”.

The PSR measures:

(Personal After-Tax Income minus Personal Outlays) / (Personal After-Tax Income)

Included in Personal Outlays would be things like 401Ks, Roths, CD, Stocks, Bonds, Commodities, etc.  But aren’t these considered to be savings?  Not by the PSR, because you have to outlay cash to buy them!

In short, the personal savings rate doesn’t measure savings! It’s more a measure of cash-flow

In actuality, savings rates could be going up as we cut back on disposable consumables (likely a good thing), or it could also be that consumers have stopped contributing to the 401ks (likely a bad thing) and the real savings rate is lower.  What is known is that however we’re saving; we’re saving with less risk (and less return).

Let’s wrap this back into what it means for you, the personal finance blog reading consumer.  What you know from this statistic is that the typical American consumer is keeping more greenbacks in the bank or in their mattress (By the way, this also nicely explains why inflation hasn’t gone up much).  Further, it may mean that consumers are moving out of riskier savings vehicles and deciding to spend some money on consumables and keep the remainder in very safe low yield accounts.

For the Personal Finance blog reader, what does PSR mean to you?  For most folks, the PSR increases reflect the current uncertain economic situation and “emergency funds” are more funded these days.  Of course, if you already had a well-funded emergency fund, then you might want to consider a different reaction.  If my conjecture above is correct that investment activity is lower now as consumers substitute 401K savings or bond savings to cash-like savings, then follow Warren’s advice to “Be greedy when others are fearful”as there would be a greater chance of some good long-term investments  being sold at a wonderfully reduced price.  Further, the PSR appears to be continuing to rise. You can bank on the current economic climate continuing beyond the next 12 months pretty certainly based on this.

Next week, I’ll cover just what the real story is behind the mysterious Unemployment Rate and why it shouldn’t be used to measure how the economy is at this very moment.  Controversial statement, but I will explain it neatly.  As a teaser, did you know there are 6 different versions of it?  Which one is reported?

8,285 Responses to Lies, Damn Lies, and Statistics
  1. Ernestina Mickel
    April 19, 2019 | 10:56 pm

    HiWhat’s upHi thereHello it’s me, I am also visiting this websiteweb sitesiteweb page regularlydailyon a regular basis, this websiteweb sitesiteweb page is reallyactuallyin facttrulygenuinely nicepleasantgoodfastidious and the userspeopleviewersvisitors are reallyactuallyin facttrulygenuinely sharing nicepleasantgoodfastidious thoughts.

  2. http://pkfslovo.ru/anketa/
    April 20, 2019 | 12:52 am

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  3. Lashawna Poundstone
    April 20, 2019 | 1:35 am

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  6. Blair
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    But, what in regards to the bottom line? Are you sure in regards to the supply?

  11. the boss
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  12. tinyurl.com
    April 20, 2019 | 11:06 am

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  19. Stephen
    April 20, 2019 | 10:30 pm

    Excellent article. Keep posting such kind of info on your blog.

    Im really impressed by your blog.
    Hey there, You have done a fantastic job. I’ll certainly
    digg it and in my opinion recommend to my friends.
    I am confident they will be benefited from this website.

  20. Lorene
    April 21, 2019 | 1:58 am

    All varieties of investments come with sure risks.

  21. Adell
    April 21, 2019 | 6:28 am

    Hi there, this weekend is nice in favor of me, as this point in time i am reading this impressive educational piece of writing here at my house.

  22. bit.ly
    April 21, 2019 | 6:36 am

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  23. Laporan Keuangan ELSA
    April 21, 2019 | 7:33 am

    Portal Berita Saham & Investasi di Indonesia. Kami menghadirkan berita terkini dan terupdate langsung dari sumber yang terpercaya. Selain itu SAHAM.NEWS juga menghadirkan Analisa & Rekomendasi saham harian dari berbagai sumber analis profesional maupun analis independen di Indonesia

  24. tinyurl.com
    April 21, 2019 | 11:52 am

    Write more, thats all I have to say. Literally, it seems as though
    you relied on the video to make your point. You obviously know what youre talking about,
    why throw away your intelligence on just posting videos to your blog when you
    could be giving us something informative to read?

  25. http://tinyurl.com/y5p5nk4v
    April 21, 2019 | 12:34 pm

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    i recommend him/her to pay a quick visit this web site, Keep up
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  26. Carlos Magno Nunes Barcelos
    April 21, 2019 | 1:13 pm

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    Please reply back as I’m wanting to create
    my very own website and want to know where you got this from or exactly what the theme is
    named. Cheers!

  27. tinyurl.com
    April 21, 2019 | 2:42 pm

    Excellent blog! Do you have any hints for aspiring writers?

    I’m hoping to start my own site soon but I’m a little lost
    on everything. Would you recommend starting with a free platform like WordPress or go for
    a paid option? There are so many options out there that I’m completely confused ..
    Any tips? Thanks!

  28. tinyurl.com
    April 21, 2019 | 3:36 pm

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  1. Raw Chef Training Bali
  2. خرید و فروش خودرو دست دوم
  3. دوربین مداربسته
  4. 먹튀검증소
  5. دوربین مدار بسته
  6. کارشناسی لکسوس
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