Economists say the only way you can get your finances in better shape is to save more and spend less. Economists also say that the way to get our national economy in better shape is to have people spend more—and therefore save less. So basically, right now, we should all be spending more and saving more. Right …
The NY Times magazine discusses the “U.S. Savings Bind” we currently find ourselves in. We’re getting something of a mixed message: The government encourages citizens to save—it looks like most workers will be all but forced to save through automatic savings enrollment programs—at the same time it eagerly encourages citizens to buy stuff, like cars in the cash-for-clunkers program.
The Times’ mag sums up the recent history of saving:
The prescription that we should save more isn’t wrong. Household saving is the total of what people earn less what they spend. If you want to describe the history of the U.S. economy over the last 50 years, in shorthand, you could do worse than this: Americans saved. Then they didn’t.
For the 35 years after World War II, Americans dutifully set aside about 9 percent of their income. Their savings were plowed into stocks and bonds and formed a pool of capital for investments and new technologies (and a couple of wars, not to mention the space program). They begat a golden era of productivity and growth and, eventually, the 1990s boom. But by then, habits were changing. Starting in the mid-1980s, the personal-savings rate declined. Credit became more available, and people became used to borrowing what they needed. (The commonplace phrase “saving up” — as in “I’m saving up for a washing machine” — all but disappeared.) Also, bubbles in stocks and real estate convinced people they didn’t need to save much for the future, since even a small nest egg would grow into a big one. By the late 2000s, the savings rate plunged to less than 1 percent.
Now, we’re supposed to start saving again—just not too much.
Call me unpatriotic, but I don’t think it’s my responsibility to spend and spend for the sake of the economy. I can’t take one for the team here. If the economy truly relies on people continually buying stuff they don’t need, something seems wrong.
