5 Big Reasons Why Americans Don’t Save Their Money

[xchrom]

http://www.alternet.org/economy/5-big-reasons-why-americans-dont-save-their-money



***SNIP

1. Because It’s So Easy to Borrow

In 1923, a battle for the soul of the American consumer economy took place in Detroit. General Motors was eating Henry Ford’s lunch, thanks to a revolutionary innovation: consumer financing. For the first time, ordinary folks could borrow against future earnings from a big corporation. Ford, who despised finance, parried by offering savings accounts at his dealerships. You could sock away money for a new Model T—and you’d earn interest! But Ford’s idea didn’t stand a chance. In modern American history, the availability of credit and the savings rate stand in an almost perfectly inverse relationship. And GM’s peculiar new business model was just the beginning of credit’s availability to the average man. When usury laws were rolled back in the 1970s, easy credit flooded the market. According to analysis by the Federal Reserve Bank of San Francisco, changes in the availability of credit can explain about 90 percent of the long decline in American savings—down to where we are today, with an anemic savings rate of about 4 percent.

–Consumers and the Economy, Part I: Household Credit and Personal Saving, by Reuven Glick and Kevin J. Lansing, January 2011

2. Because We Throw Bones to the Wrong Dog

As a nation, we spend about $130 billion each year through the tax code to encourage people to save for the future. Trouble is, almost all of those tax benefits accrue to the wealthy—who of course don’t need the help and would save anyway. According to this paper from the Pew Charitable Trusts, the highest income quintile receives 70 percent of the benefits from these tax incentives. The lowest income quintile receives only 0.2 percent.

–A Penny Saved is Mobility Earned: Advancing Economic Mobility through Savings (pdf), by Reid Cramer, Rourke O’Brien, Daniel Cooper, and Maria Luengo-Prado, November 2009

3. Because So Many of Us Live Off the Financial Grid

Roughly 30 percent of Americans have no savings account, while 8 percent have no bank account at all. Absent a relationship with a bank, it’s incredibly hard to build wealth. American banks don’t make it easy for small depositors: minimum balance requirements and onerous fees regularly drive financially fragile savers away. When unbanked Americans need financial services, they often turn to expensive, down-market, sometimes predatory options like payday loans, check-cashing services, and money orders, whose high costs further erode wealth and potential savings. It doesn’t have to be this way: European nations like France, Germany, and Belgium have special banking systems for small depositors—often in the form of post office banks—and boast savings rates in the neighborhood of 10 percent.

[HughBeaumont]

1. There's really only one reason, to be perfectly honest:

Real-dollar wages haven't been keeping up with the cost of living for 32 years straight; absent excess income that now goes straight to bills, the average person cannot save. All of the productivity gains are being redistributed to the top of the food chain and staying there. Cinch.

[xchrom]

2. if i remember the 80s correctly -- the phrase used to talk about our income was 'wage inflation'. nt

[Warren Stupidity]

5. Shhh..

We are supposed to keep that a secret.

[HughBeaumont]

8. Right, right . . . (ahem) . . . "TAX CUTS!!"

It's what plants crave!

[Hotler]

9. Plus, remember when you could earn 5% or more on a savings account. N/T

[HughBeaumont]

10. Now we're losing money even further . . .

. . . because of (surprise) account fees that don't even cover the crap 1-3% you're earning in interest.

[quaker bill]

3. Because it simply does not work

I had 401Ks that never went anywhere, because the companies I worked for never put in a meaningful amount, and what little they did put in was eaten by management fees and market losses. After 6 years, I had $1200 in one, my wife, after 10 years had $1600 in hers.

I had my own money in the market, and cashed a good chunk out to buy a defined benefit plan, specifically a pre-paid college tuition plan for my youngest. As it turns out she was class of 2009 out of HS. If I had left that cash in stocks, it would not have bought more than 30% of her tuition costs. Instead, she was fully paid up in advance and was able to use scholarship money she won for books and living expenses.

The bottom line was that with investing my own money (after tax money) I could withdraw it without penalty and shelter it from the crash. All the 401K folks around me took the beating, I ducked.

[DrDan]

4. our economy is based on spending, not saving.

what bank interest rate is available to small savers? near-zero.

"We" need those dollars circulating - new homes, new cars, new consumer electronics.

Every tendency toward saving is thwarted - else the wealthy cannot add to their wealth.

[bemildred]

6. I figure if you give the banks money, it just encourages them.

Better to spend it right away on something.

[xchrom]

7. !

[hobbit709]

11. When your basic living expenses equal or exceed your income, there's nothing left to save.

[LiberalEsto]

12. 6. They don't earn enough to have anything to save

7. Interest rates suck.