AMERICANS probably aren’t saving enough. Savings come in handy in many circumstances: when buying a home, paying for a child’s education, retiring, or in cases of unexpected need. Yet despite aging populations and rising educational costs, America's savings rate has been falling. The figure below shows the saving rate (for January) the last 44 years:

The drop began in the 1980s, perhaps because the Great Moderation made people less fearful of economic uncertainty. When uncertainty returned during the financial crisis, and as credit conditions tightened, the saving rate shot up. Wage stagnation may also play a role; people expected better living standards and cut back on saving to raise consumption. The saving rate fell again this past January. That may reflect greater economic optimism or the return of the full payroll tax, which lowered take-home pay. Rather than decrease consumption people may have saved less.

The falling saving rate is a worrying trend. A low stock of savings increases vulnerability to economic shocks. Expansionary economic policy has helped invigorate the economy by boosting consumption, through low interest rates. People save more during recessions—and more then businesses care to invest, leading to underutilised resources—so boosting consumption increases aggregate demand and jumps starts recovery. With saving rates already so close to zero, the government might have had better luck boosting the economy through its own dissaving, via deficit-funded stimulus, than through trying to encourage such behaviour in strapped households. And over the longer run, policies that discourage saving look foolish at current saving rates.

What’s interesting about the long term trend is that it coincides with the period when private pension accounts became more popular (the figure above counts 401(k) programmes and contributions to defined-benefit plans). Since 2006 firms could auto-enroll their employees: they could automatically put some of their wages in the accounts, unless explicitly told otherwise. This increased participation in these accounts. According to the Wall Street Journal, contributions to 401(k) plans have increased 13% since 2006.

There’s mixed evidence on whether pension accounts create new saving: whether or not people who have accounts save more or simply save less using other sources. For for active savers, people who normally save, access or auto-enrolment doesn’t change overall saving. But for passive savers, people who normally wouldn’t save much, auto-enrolment creates new saving that normally wouldn’t have existed. Passive savers tend to be younger and have lower incomes than active savers.

And this is the population that isn’t saving enough to begin with. They should be saving more for distant retirement and for precautionary reasons. The figure below shows average amount median income earners had in liquid assets (savings accounts, CDs, and savings bonds) and retirement accounts since 1989 (in 2010 dollars) from the 2010 Survey of Consumer Finance:

People now have much more of their wealth in retirement accounts. That’s not surprising. Private pension accounts have become more popular and the population has aged. People should have more in their retirement account than in liquid savings. It takes a lot more money to finance retirement, decades of no income, than it does to finance your typical precautionary event. Retirement accounts generally earn a higher yield (because they are typically invested in riskier securities). The decline in liquid savings in worrying, however. It suggests people are less prepared for the shocks life throws at them. Thismay be due to many factors: slow income growth or that the low return on low-risk saving instruments, which reduces the incentive to save.

Interestingly, the lower levels of liquid saving may explain why there’s been an increase in the number of people taking out loans against their 401(k) plans or paying the penalty to draw on them early. Meanwhile, the average retirement account balance for people between 55 and 64 is $291,000, which will only provide about $12,000 a year in inflation-indexed income. Taking out a loan means a saver misses out on valuable accruals. But without another source of saving taking a loan against retirement funds maybe be a better financial decision than default on other obligations.

To me the sudden increase in 401(k) loans is less about myopia and more a symptom of under-saving. As people save less to liquid assets and are being defaulted into a 401(k) plan; it’s not surprising they turn to their main source of saving when times get rough. Rather than make savings more illiquid, we need to do more to make all forms of saving more attractive.