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April 19, 2006

Income and savings

There are many ways that a family's income level affects how they live, and one of the biggest is in the ability to save money. N.C. State University economist Mike Walden considers how savings rates relate to income.

"There is a big correlation there, and what we find is the ability to save as you say dramatically increases with income," says Dr. Walden, a North Carolina Cooperative Extension specialist in the College of Agriculture and Life Sciences.

"Let me just give you some numbers here: For those people earning less than $20,000 a year, only about a third of them are able to save money. On the other hand, if you move up the income ladder, people making between $40,000 and $60,000 a year -- about half of those folks are able to save money in any given year," he says. "And people making more -- above $60,000 -- over 80 percent of those are able to save in any given year.

"Now the big reason for this is spending on necessities like food, clothing, housing, transportation and medical care, they do tend to increase with income but not certainly at the same rate. That is, someone who is earning twice as much as another person likely isn't going to spend twice as much on food, clothing and transportation.

"So as your income goes up you are much better able to cover your necessities. That gives you a lot more room to save."

Posted by deeshore at April 19, 2006 07:11 AM