The first quarter 2010 savings rate dropped from 3.9 to 3.1 percent. Given the severity of the recession, economists assumed that out of fear Americans would save more. That has not been the case.
Theories abound for the abysmal savings rate: high unemployment, little incentive to save in a low interest rate environment, high debt levels siphoning off income, stagnant personal income and others. Yves Smith, founder of Naked Capitalism, introduces an intriguing theory that when an economy features great income disparities, a “plutonomy” emerges wherein the over-confident wealthy spend rather than save.
Behaviors on both ends of the income spectrum no doubt played into the low-savings dynamic: wealthy people who spend heavily, and struggling average consumers who increasingly came to rely on borrowings to improve or merely maintain their lifestyle. And let us not forget: average consumers were encouraged to monetize their home equity. See High Income Disparity Leads to Low Savings Rate
I would posit another theory. Americans have no confidence in the future.
The “Me Generation”
Baby Boomers grew up with the threat of “the Bomb,” Viet Nam, the assassinations of President Kennedy, Robert Kennedy and Martin Luther King Jr., and drug and sexual experimentation. Paul Begala, political adviser to Bill Clinton, Baby Boomer in Chief, commented in Esquire:
At the risk of feeding their narcissism, I believe it’s time someone stated the simple truth: The Baby Boomers are the most self-centered, self-seeking, self-interested, self-absorbed, self-indulgent, self-aggrandizing generation in American history. See The Worst Generation
Losing Confidence in the Future
Generational characteristics have macro-economic consequences. We have discussed the “Greediest Generation” with the ethos of “I want it and I want it now.” See The Greediest Generation – Where has Shared Sacrifice Gone? Missing from that analysis, however, is a less obvious underlying motivation: my view is that collectively Americans have lost confidence in the future.
The Meaning of Savings
Savings requires deferring immediate gratification in order to provide for the future. Savings requires a goal: a house purchase, kids’ college education, retirement, intergenerational wealth transfers, and future medical needs.
The task is daunting. Society and even bogus patriotism conspire against a savings ethics: diner coffee for $1.25 or treat yourself to Starbucks?; extend yourself and buy a house now or save for a larger down payment?; buy a no-money-down car now?; take out a student loan for college or work for a few years first? The present trumps the future. With consumer spending representing 70 percent or more of the economy, is saving actually un-American? And governmental policy discourages savings through ultra low interest rates, tax credits and deductions encouraging taking on debt and consumption.
Save Some Money, Save Yourself
The siren song of indulgence and consumerism has led us directly into the path of this tornadic financial crisis. We’ve accumulated too many houses, plasma televisions and attendant debt. In the face of an anti-savings zeitgeist, saving money is a good idea for many reasons: a chance for personal financial autonomy, a better life for our children and grandchildren and a secure retirement. Savings requires self-sacrifice, thriftiness, a financial plan and debt avoidance. And most of all, savings requires confidence in the future. Lurching from crisis to crisis, dire headlines at home and abroad, house foreclosures, and high unemployment has sapped this much needed confidence.
In the end, we have always been a resilient, even optimistic people. Let’s save some money and save ourselves.
loading...