What’s to blame for the falling national savings rate? Experts point to a range of reasons Americans just can’t (or won’t) save, including income inequality, the collapse of housing values, the disappearance of pensions, the rising costs of education and health care, and the iPad.
The national savings rate rose sharply after the economy collapsed—from near zero to around 7%. That’s paltry compared to China, where 25% of disposable income is saved, but it appeared as if the American consumer might be turning away from borrowing and living beyond one’s means. Now, however, the savings rate is back to around 5%, and polls say that 27% of Americans have no personal savings whatsoever.
The NY Times Room for Debate blog asked six experts to weigh in on why this is so. While the explanations vary, the heart of the debate is this: Does saving come down to personal discipline and responsibility? Or do larger forces currently at play make it nearly impossible to save nowadays?
Thomas Geoghegan, a Chicago labor lawyer and author of Were You Born on the Wrong Continent?, says that it’s just too difficult to save, what with the disappearance of pensions and the increasing odds that, even if you’ve been sticking to a budget and saving diligently, there’s a decent chance those savings will be eaten up before retirement:
something always does go wrong: a wife has a stroke, the boarder you took in to help suddenly lost a job, or … you lose your job. Then it’s on the Visa card, and 20 percent of your income is going to interest of the bank, because of one little accident over which you had no control. Poof: there goes the house, if it was not under water already. Or there go 30 years of savings on an I.R.A., for which your bank out of the goodness of its heart had been paying interest under 1 percent.
Tyler Cowen, an economics professor at George Mason and author of The Great Stagnation, lays out four reasons Americans can’t (or won’t) save, starting with a combo of stagnant household income and the presence of all sorts of expenses that are new, or that that cost way more than in the past—health care, education, iPads, and more. Also, compared to other parts of the globe, the culture of borrowing has a much bigger presence here, even among the poor:
Fourth, in terms of credit institutions, it’s still relatively easy for poor people to borrow in the United States, compared with, say, Japan or Europe. Both the economic incentives and the cultural norms nudge these individuals in the same direction, namely toward more spending and less savings.
Amar Bhide, a Tufts University business professor and author of A Call for Judgment, also blames rampant borrowing and the widespread acceptance of living beyond one’s means. Bhide says that these consumer habits aren’t exactly new, however:
By 1926, two-thirds of all cars were purchased on credit. Even the Great Depression didn’t deter borrowers. In 1935, the Bank of America blanketed San Francisco with an ad campaign for auto loans.
Barbara Defoe Whitehead, co-editor of Franklin’s Thrift: The Lost History of an American Virtue, focuses on the fact that saving—which nowadays is likely to mean paying down debt—is just not fun, requiring uncommon levels of patience and discipline:
Shedding debt is a lot like shedding pounds. It involves slow, steady, disciplined effort before it yields substantial results. It means passing up short-term pleasures for longer-term gains.
Daniel Gros, director for the Center of European Studies, points out that rising income inequality makes it more difficult than ever for the masses to save, even as the overall national savings rate has increased in the U.S.:
The increase in the average savings rate is obscured by an income distribution which is so skewed toward the top that a large fraction at the bottom of the distribution barely gets by and is even less able to save today than before the crisis brought about high unemployment.
Finally, Mike Konczal, a Roosevelt Institute fellow, highlights the especially bad job markets for two groups who increasingly find themselves deep in debt—workers in their 20s and workers over age 55—and also fundamental changes in how Americans now get themselves in debt:
Traditional lending has given way to a system of credit lending in which lenders count on the fees, interest rate jumps and lock-ins in contracts for profits rather than simply getting paid back with interest. With a profit model that depends on people rolling over their debt endlessly (like a 21st century form of debt peonage), it is no surprise that savings rates are down — people’s “savings” mostly go towards maintaining debt.
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