By James Kwak
It seems obvious. Yet it’s often lost, both by the scolds who lecture Americans for not saving enough and by the self-appointed personal finance gurus who claim that anyone can become rich simply ye saving more (and following their dodgy investment advice). Saving is sometimes seen as some kind of moral virtue, but from another perspective it’s just the ultimate consumption good: saving now buys you a sense of security, insurance against misfortune, and free time in the future, which are all things that ordinary people don’t have enough of.
Real Time Economics (WSJ) links to a new survey being pushed by America Saves (which appears to be a marketing campaign run by the Consumer Federation of America, which seems not to be evil*). According to the survey, there are significant differences in savings rates and accumulated savings between lower-middle- and middle-income households. And that’s treating all households in the same income bracket as being alike, leaving aside differences in family structure, cost of living, etc.
I’m all for living within your means and saving for retirement and all that. But it’s a myth to say, as America Saves does on its home page, “Once you start saving, it gets easier and easier and before you know it, you’re on your way to making your dreams a reality.” The underlying problems are stagnant real incomes for most people, rising costs (in real terms) for education and health care, increasing financial risk due to the withdrawal of the safety net, and increased longevity (good in some ways, but bad if incomes aren’t rising and you want to retire at 65). That’s why households are showing up at age 64 with less in retirement savings than they had just last decade. And why, if you feel like you’re not saving enough, it’s probably not your fault.
* But America Saves itself is supported by a bunch of financial institutions and trade associations like the Investment Company Institute, which have a vested interest in getting people to entrust more money to them.
The Baseline Scenario 
It’s about as obvious as living well over a hundred years.
This is probably controversial advanced economic research these days. Of course, poor people don’t save. What are they going to save with. They don’t take vacations at fancy resorts in Gstaad either.
It’s impossible to save when you don’t make enough to pay for all of your monthly expenses. It’s not a brilliant concept, and yet people don’t seem to understand the simplicity of what you’ve said above. Thank you for this piece.
The poor pay a much higher percent of their income for rent than they did 30 years ago and most had some benefits and health care coverage before we lost most of the industrial unions.
Also some countries save a lot because they have yearly bonuses , like Japan and China for example , which makes it easier to save. Plus the media saturated with commercials makes you into an unsatisfied consumer thirsty for the next purchase.
One of Kwak’s semi-genius abilities as a writer (and I am not being facetious) is to point out something that is “obvious” yet as he said “gets lost” in the noise and badly needs to be brought out, highlighted, and articulated. It is probably my second favorite aspect of why I love this blog, other than it’s main focus on banker and finance industry corruption/shenanigans.
Kwak and Johnson have the intelligence, talent level, and education credentials to go “f*ck the little guy, f*ck the mediocre, f*ck the guy living from paycheck to paycheck” but Kwak and Johnson don’t do that. They “feel” for the common man out here. That takes a rare breed, a certain amount of compassion and empathy. It’s a highly rare bird and endangered species in their tax bracket, I can promise anyone reading this.
OK, now that Love Fest is over….. (I do appreciate this blog though, really)
My income is very low, but I do manage to save money, but only for short periods of time. The way I do it is to save $1.00 bills from specific mints. Each of the 12 mints have their own identifying number on the bill. For example, I save all the bills from Richmond, Virginia (mint number 5) for myself; all the bills from Atlanta, Georgia (mint number 6) for my daughter; the 11s (Dallas, Texas) for my son, and so on, for grandchildren, etc. You get the idea. I call the mint-number money “Number Bread.”
Saving these bills for my family makes it next to impossible for me to spend them on anything else, unless I have an emergency. Admittedly, not much money accumulates. But saving and sharing the money this way takes the sting out of being poor.
Well intentioned but wrong. Personal savings for retirement by middle income folks with kids is not going to happen if they live in a major urban area and not in a refrigerator box. The loss of defined benefit plans, as advocated by the Koch-suckers and their ilk, has rendered impossible well-funded retirement by the urban middle class. And now they are aiming at wiping out such plans for public employees, in many cases the most underpaid working group in the country. I know. In the interest of full disclosure, I am a retired federal employee (attorney) who made less money than the bag-carrying associates who accompanied the partners with whom I did battle each day. I am among the lucky ones. Pension, years of savings, no kids, and careful planning. But no more.
If one can manage to save money (nearly impossible for the urban middle class), modern finance do everything possible to make sure sure it is not around when you need it, between fees, bad investment advice and periodically crashing the economy. Yet the cruel-hearted (that’s the nicest way to put it) Koch-suckers are doing all they can to eliminate all pensions and all American’s right to bargain for a fair share of earnings to enable a comfortable retirement. All gains to capital, none to labor. This cannot go on much longer. Sharpen the guillotines.
No James C, it could go on forever, the fact that it won’t go on much longer, points to the method of my thinking. We are battling the ones whom want to preserve their beliefs and be respected for them, even though they are faulty and rotten to the core. You can’t love um, you can’t trust um, but you can trick them.
The “moral virtue” part is what makes me sick. You hear it all the time on shows like NPR’s MarketPlace Money. They don’t realize how much it makes them sound out of touch and geared to the upper crust.
I have fun watching how economists handle this concept (but not really)
because it is so simple
and it is the essence of keynes multiplier
but keynes kept it simple
he talked about investment and consumption and savings, and one can actually intuitively understand it
but modern economist had to change it, and investment had to be divided into goverment spending G plus private investment I minus taxes, plus this minus that
and they never learn it the simple way keynes put it where you could understand it intuitively
yes poor people spend all or most of their income and therefore the stimulus on the economy can be profound if you give them more income
(and yes this involves a transfer of a percentage of the total money supply from rich who dont spend it, to poor and middle class who do)
so what
what great tragedy befall us????
advancements in our society and culture the benefits all, since everyone gets involved
(and inclusion of disenfranchised can decrease antisocial behaviors)
and so on
To djb: Absolutely true ! You have masterfully articulated the key to personal, local, state, national, and global economic success.
Here’s an analogy your average reality TV viewer idiot might understand. Or even some idiot who watches an unrealistic socio-economic representation of Britain in those times aimed at an uneducated American’s fantasy idealization of Britain in those times:
http://www.marketwatch.com/story/welcome-to-downton-abbey-america-2014-02-24?link=mw_story_kiosk
I have always saved money when I could. I thought I was going to have a paid-off home and a healthy savings account, even though I went thru several recessions that set me back. Recessions caused by the Fed raising interest rates for the purpose of causing unemployment in order to protect the rich from inflation. But finally the combination of recessions and age discrimination wiped out all my savings, and my home was foreclosed. I am told I should buy long-term care insurance. It’s safe to forecast that when baby boomers start needing it in large numbers, the companies they have been paying to will declase bankruptcy and leave a bunch of people with nothing for the money they paid.
To P. Shannon: Any senior with a brain cell left should not buy into those expensive long term care facilities, or insurance that, as you point out, will not be there when we need it. We need to pool what’s left of our money and start communal living homes, which we run as non-profits, and have total control over. Most true Boomers dropped acid at least once, and inhaled at least twice. Let’s put those hallucinations and visions we had then to work for us now for our old age.