If share prices plunge, a low personal saving rate provides less of a cushion than a high one.

ECONOMIST: Rainy-day blues

The personal saving rate in July dipped to a negative 0.9%, the 16th month in a row the rate has been negative.

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Indeed, one of the strongest arguments for a shift to individual provision is that it should raise the personal saving rate, which would help to foster economic growth.

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Ed McKelvey, an economist at Goldman Sachs, points out that the historically flat personal saving rate (once realised capital gains are included) means that households are, in essence, treating such gains as a perfect substitute for disposable income.

ECONOMIST: Rainy-day blues

Since the old, who have shorter time horizons, have larger propensities to consume than do the young, this transfer has fueled a huge increase in personal consumption, reducing our national saving rate (saving as a share of national income) from 10 to 15% in the 1950s and 60s to a negative 1.5% last year.

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