There’s a financial statistic that has a lot of doom-mongers in a panic: the savings rate. That’s a figure that governments track, to determine how much disposable income we taxpayers are socking away into our bank accounts. And apparently it’s now in steep decline.

 

In the U.S. today, the savings rate is actually a negative number. This suggests that not only are Americans not saving any money, they’re actually digging themselves deeply into debt.

 

Surely this suggests some sort of crisis in the making? That shouldn’t surprise us: our consumer society always encourages us to spend rather than save.

 

As a financial advisor, it’s my job to convince people to set aside funds for worthwhile activities – such as eating during their retirement. (This is particularly an issue since the globalization of our business world has meant an end to many pension plans). So naturally, I’m not one to suggest that a negative savings rate is a good thing.

 

But to me, something sounds a little hollow about this scary “fact.” For one thing, we all seem to be quite a bit better off financially today than the last couple of generations have been. So let’s examine the evidence carefully.

 

First off, the way the U.S. government measures the savings rate seems quite flawed to me. For instance, it doesn’t count as “savings” the money American put into their 401k plans – the U.S. equivalent of our RRSPs. It also doesn’t count the money they use to pay their mortgages; the equity owners have in their businesses; or capital gains on stocks.

 

I consider all those things to be valid savings vehicles. Frankly, if I were to remove all those aspects from my own wealth-creation activities, I’d quickly find myself in “negative savings mode” as well.

 

The fact is that in the last three years, the value of all assets in the U.S. has increased $16 trillion (net of debt). Another way to put that: all of America’s households have become $140,000 richer during that period.

 

So what’s going on here? One answer is bad measuring practices. The government is looking only at people’s bank accounts. But if you just measure those, you’re not really seeing the full picture. There are many better vehicles than savings accounts to put money in these days, and smart investors are taking full advantage of them.

 

Another answer is that many people today create their wealth less through savings, and more through equity. Most really wealthy people develop and/or sell businesses, invest in real estate, take an ownership position in firms, create professional practices. These are all examples of building wealth through equity rather than through savings.

 

I usually advise my clients to have an equity creation plan. The great thing about equity is that it grows like corn in the night: you just need to get the seeds started, and then stand back and give it time. The equity in your home builds slowly but surely. A successful business too operates on a day-to-day basis – and over time it amasses a pile of equity.

 

Of course, this approach isn’t for everyone: creating equity always entails some risk in exchange for the potential gains. You may not be the entrepreneurial type. In that case, I recommend a disciplined savings plan of the conventional kind.

 

But if you do have the entrepreneurial urge, think about what equity opportunities are available around you. Is there a company you can work for that gives ownership to its key employees? Would investment real estate be right for you? Could you build a company instead of working for one?

 

It’s true: you can save your way to being comfortable. But as Donald Trump, Bill Gates and even your local real estate developer can tell you, you can’t save your way to being really, really rich. For that goal, your magic word is “equity.”

 

Alan MacDonald is an investment advisor who helps high tech entrepreneurs make smart decisions about money. Contact Alan at Alan.Macdonald@RichardsonGMP.com or visit his website at  www.alanmacdonald.ca