South African household savings rates have been declining steadily over the last five decades, from about ten percent of national income to nil or negative levels today. Due to the importance of savings on both the household – and aggregate level, the government has introduced several initiatives to reverse the trend. It is against this background that this paper asks whether our current way of measuring savings as the residual between income and expenditure is appropriate to guide economic policy in South Africa. Comparing different macroeconomic concepts and measurements of savings, I first show that the measure of savings in the national income and production accounts greatly understates the household savings rate compared to other measures. Specifically, a balance-sheet perspective on savings yields a significantly higher and historically relatively stable savings rate. While households haven’t been putting aside” their incomes, they have nevertheless grown richer, driven largely by favourable asset price developments. I also examine the impact of taking non-financial savings and wealth (such as human capital accumulation) into account, and conclude that household sector savings on the aggregate are higher than the national accounts suggest. However, these adjusted measures of savings are most relevant for the upper tail of the income and wealth distribution, raising important distributional concerns. Specifically, the well-documented observation that the rich save more becomes even more pronounced when the adjusted savings measures are considered. Overall, this paper underscores the importance of being precise in what we talk about when we talk about savings, and in using less conventional data sources (balance sheet and household survey data) to measure the concepts most relevant to the question asked.
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