Is negative savings rate a problem? John Merrill, investment manager, Houston
By Laura Bruce • Bankrate.com

John Merrill, investment manager and founder of Tanglewood Capital Management in Houston, addresses the question: Is negative savings a problem?

"If you look at financial history, most individuals focus on their income statement -- how many dollars are coming in and how many are going out. Institutions look at their income statement and their balance sheet. Banks looks to see how much leverage they can tolerate because that's how they can expand their earnings.

"Individuals, because of asset inflation during the past decade in everything from stocks to real estate, are also now looking at their balance sheet and not just the income statement. They're judging their overall financial health. Am I growing in value? People are looking at their finances in a multifaceted way. Brokerage accounts and software such as Quicken have made people much more aware of their balance sheet today than they were a decade ago.

"This provides the opportunity to see if the balance sheet is growing. Are assets growing faster than liabilities? Then I'm worth more at the end of the year than at the beginning of the year. I'm making a net improvement. So what if I increase my leverage? I'm still better off than at the beginning of the year.

"But I think there are two dangers. The first is that home prices flatten or drop. Then the balance sheet doesn't keep growing for a big share of the American populace and then they don't have that to fall back on.

"The second danger is, it's one thing to look at a balance sheet and say it's growing, but it's another to pay bills each week. If interest expense keeps growing it squeezes out what you can pay for other items. As a nation it crowds out other spending. You have less disposable income.

"Overall, I think the baby boomer generation is in great financial health. Divide it into a top half and a bottom half. The top half is significantly better off than the bottom half. They can't fall back on an increasing balance sheet so they're still more controlled by seat-of-the-pants dollars in and dollars out.

"But the inheritance factor figures in. Some people in the bottom half will inherit so they're not in as bad a situation as you might think. I have over 300 clients in the baby boomer generation, and the generation that preceded them, and I see a tremendous desire by the older generations to help the younger generation. They're not just waiting to hand over money as an inheritance; they're buying them new cars and homes."

Negative personal savings Just how serious a problem is the negative savings rate? Click on each expert's name to view his answer.

Is negative savings a problem? • Joel Naroff, president and chief economist, Naroff Economics Advisors Inc., Holland, Pa. • John Merrill, investment manager and founder, Tanglewood Capital Management, Houston • Tony Proctor, certified financial planner and president, Proctor Financial, Wellesley, Mass.