People once again spent everything they made and then some last year, pushing the U.S. personal savings rate to the lowest level since the Great Depression more than seven decades ago.

The savings rate for all of 2006 was a negative one per cent, the U.S. Commerce Department reported Thursday. That means not only did people spend all the money they earned but they also dipped into savings or increased borrowing to finance purchases.

The 2006 figure was lower than a negative 0.4 per cent in 2005 and was the poorest showing since a negative 1.5 per cent savings rate in 1933 during the Depression.

The U.S. savings rate has been negative for an entire year only four times in history — in 2005 and 2006, and in 1933 and 1932.

However, the reasons for the decline in the savings rate were vastly different during the two periods.

Needed to spend savings

During the Great Depression, when one-fourth of the labour force was without a job, people dipped into savings in an effort to meet the basic necessities of shelter and clothing.

Economists have put forward various reasons to explain the current lack of savings. These range from a feeling on the part of some people that they do not need to save because of the run-up in their investments, such as homes and stock portfolios to an effort by many middle-class wage earners to maintain their current lifestyles even though their wage gains have been depressed by the effects of global competition.

Whatever the reason for the low savings, economists warn that it the phenomenon exists at a particularly bad time with 78 million baby boomers approaching retirement age.

Boomers in spending mode

Instead of building up savings to use during retirement, baby boomers are continuing to spend all their earnings.

"These low savings levels are coming right as baby boomers are starting to retire and after your retire, your savings rate typically goes down as you live off previous savings," said David Wyss, chief economist at Standard & Poor's in New York.

The savings rate is computed by taking the amount of personal income left after taxes are paid, an amount known as disposable income, and subtracting the amount of spending.

Since the figure has dipped into negative territory, it means consumers are spending all of disposable income and then some.

For December, the savings rate edged down to a negative 1.2 per cent, compared to a negative one per cent in November. The savings rate has been in negative territory for 21 consecutive months.

In Canada, the savings rate is still positive, with Statistics Canada reporting last week that the personal savings rate for 2005 was 1.2 per cent. In the third quarter of 2006, it was 1.5 per cent.

That's a far cry from savings rates in the early 1980s. StatsCan said the savings rate in Canada peaked at 11.2 per cent in 1982. That same year, the U.S. savings rate topped out at 20.2 per cent.

The agency said the falling savings rates since then in both countries are due to more personal spending consumption and higher mandatory transfers like income taxes and contributions for security programs.