http://www.theatlantic.com/business/archive/2016/04/why-dont-americans-save-money/478929/#article-comments
What do you think could be done to stimulate Americans to save more? Are there any points the author makes that resonate with you?
Friday, May 13, 2016
Americans aren't saving anymore
As we know, saving is an essential component for economic growth and before the 1980's American's saved on average 10-12% of their income. Today, Americans are saving on average 5.4%, however, approximately 47% aren't prepared for a financial emergency with little or no savings in their bank accounts. Over the past few decades we've seen wages stagnate while productivity rises and more families struggle to stay out of poverty. The 2008 recession resulted in the loss of over $15 trillion in American wealth alone and approximately $35 trillion worldwide. This article confronts the issue and offers possible solutions to the saving dilemma:
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Unfortunately some people are unable to save at all so I am not sure anything but a higher income will make them save. It is difficult to really reach people in the right way. I would say to maybe decrease taxes to the middle class but in my opinion that would only encourage spending. Based on the media and general government opinion, it is engraved in American's minds to consume and spend. I think that through education and media outlets savings needs to be encouraged. We need to change the mindset that saving is good and helpful for people in the long run.
ReplyDeleteI am not convinced that raising everyones income will necessary make more people save. Also, I do not necissarily think tax breaks will convince people to save either. I imagine the "average" American would see these two things as a way to spend more. An example is that during the pre recession years people used the equity in their homes as a piggy bank to unprecedented levels.
DeleteThe biggest thing is education. It isn't income per say but what you do with it. From my experience people of all backgrounds can save at least a little if held accountable by a financial professional.
http://www.fool.com/investing/general/2016/02/29/average-americans-arent-doing-enough-to-save-for-r.aspx
The book Nudge has some interesting ideas about how to convince people to save. It's all about behavioral economics and the philosophy which it calls "libertarian paternalism". A good example of this philosophy deals with how many people don't bother to utilize the savings programs provided by their employer, even if the employer promises to match contributions. A way around this is by making the default to start the account and have it automatically take the money out of their paycheck, while letting the employee know about it and giving them the option to change it. In most cases they still just let it be and ended up saving a lot more. This obviously only works at more high quality jobs that provide these types of programs, so this solution would only really benefit upper middle class Americans, but I can't help but wonder if similar ideas could help lower middle class Americans as well.
ReplyDeleteThe point that it is easier to save money when there is more money to save is so true. But education on saving instruments is something that is in despriate need in the united states today. I think that theory 3 that the government is putting up boarders to save and encourage spending is a great theory.
ReplyDeleteThis reminds me of an interesting point that Piketty brings up in the book. The middle and lower-class had a stagnation in wage increases throughout the 2000's (while CEO compensation rose significantly), and were forced to take on more debt and save less throughout these years, thereby leveraging themselves and putting themselves at a higher risk if there were to be a financial catastrophe. If wages for middle and lower-class earners hadn't been stagnant throughout the 2000's, perhaps the recession wouldn't have had such a terrible impact on society.
ReplyDeleteI think it's the combination of the system US made it easy for people to spend money and the unclear future in the economy. Simply, people won't invest or save if the economy doesn't seem secure enough to put their money into bank account. Like Brian said in the class, if the present value of money is greater than that of tomorrow, people would rather consume it today, then wait till its value depreciates.
ReplyDeleteI think the Theory 4 about conspicuous consumption is very interesting. If people are spending more than what they can afford in order to show off to other people, there is really nothing that can be done - because it's a trend and a changing culture. But I don't know if it's necessarily limited to demographic trend, because I know in Korea, one of the most homogeneous countries, due to its "conspicuous" culture, people just spend with their credit cards and accumulate loans.