Middle-Class Americans Annually Saved $1,400 Less By 2005 Because Of Income Inequality: Study

Studio shot of old dollar notes
Studio shot of old dollar notes

Next time you find yourself staring at an empty savings account, feel free to blame the era you live in.

Middle-income households would have saved roughly $1,400 more a year by 2005 if their incomes had grown at the same rate as the top 10 percent of earners from 1980 to 2008, a new paper finds.

By comparing the income data of top-earning households with everyone except the poorest 10 percent, University of Chicago professors Marianne Bertrand and Adair Morse discovered that the growing levels of U.S. income inequality had caused about a 3 percent decrease in middle-income household savings by the mid-2000s. Altogether, the U.S. personal savings rate for all Americans declined from around 10 percent of disposable income in the early 1980s to just 1.5 percent in 2005, the researchers write.

The declining savings rate may be due in part to Americans' attempting to “keep up with the Joneses" in an era of high inequality, Bertrand and Morse explain in the report. As middle-income households find themselves surrounded by high earners, they tend to spend a higher share of their income and lean more on credit to purchase in an attempt to conspicuously consume.

"I see the house that my neighbor has, I see the clothes that they where, but I don't see what kind of health insurance they have," Bertrand told The Huffington Post. "So we see a rise in spending in what they can see versus what they cannot."

The pressure to keep up the spending habits of your peers doesn't only alter your savings account, however; it also changes your mood. A 2012 study from the San Francisco Federal Reserve found that Americans who earn less than people in their community are more likely to commit suicide than a person earning the same income in a less affluent neighborhood.

(h/t WonkBlog)



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