When I ran across this (on the saving rate, sorry but for some reason its not accepting my links!?) article in the New York Times I was hardly surprised by the news. For decades Americans have been spending more money than they have been saving. Even though our economy is consumer driven, it is of utmost importance that we begin to wane the culture of excess spending and begin to live more frugally. Conventional wisdom suggests that the way to stimulate the economy is to provide disposable income for Americans to spend which will generate profit in businesses. If a business is generating profit then it will have more income to hire employees thus creating more jobs and therefore more disposable income. This model is not incorrect by any means but this model fails us in a plethora of ways. Let’s say the government was going to give me $500 to spend. If I took that $500 and put $100 into a savings account and only spent $400 then I would still be stimulating the economy and following the model. However, the extra $100 which I placed into a savings account will turn into more money. Therefore, the more I save in the short term, the more disposable income I will have in the long run.
Thus, saving is also good for the economy and there are a few remedies for the shortfall of savings we have currently.
Creating a culture of saving
Creating a culture of saving is integral to creating a more fiscally sound and stable economy. We can do this in two ways. The first way is to have the department of education implement a financial planning curriculum for schools across the country. Starting in the first grade students should learn about money and how to manage it. By the time we are 6 or 7 years old we are receiving money and its left up to parents to educate children about what to do with it. The book Rich Dad Poor Dad outlines the different ways high and low income parents teach their children what to do with money. If we implement a comprehensive financial education program we can increase the savings rate and thus create a more stable economy.
The second way to create a culture of saving is to pass the ASPIRE act. This ASPIRE act provides all children with a $500 lifetime savings account at birth that can only be accessed for educational expenses, the purchase of a new home, or in retirement. However, the child and parents have control over the money in the account and thus can invest it however they choose. A lifetime savings account at birth coupled with comprehensive financial education will create a wealthier society with more disposable income and thus breed a stronger American economy. The best part of the ASPIRE act is that it is cheap! According to the CDC, about 4 million babies are born each year. Thus the ASPIRE act would cost the American people about $2 billion each year or .06% of the federal budget (based on a $3 trillion dollar federal budget).
Surely creating a culture of saving in the Untied States will boost our economy and create a more stable economic environment for our future! Remember that what we ultimately purchase with money is time and by saving more now we purchase time in the future.
Subscribe to:
Post Comments (Atom)
8 comments:
I disagree with implementing a financial curriculum in first grade. It is a developmentally inappropriate curriculum because children do not have a sense of monetary value until late elementary years. Even then benefits of the curriculum would not yield much... and lets not forget: Let kids be kids! However, fragments of financial planning could be put into a math curriculum in eighth or ninth grade. You want a culture that promotes saving? Start with the parents to set a model to follow.
There is no way any solid curriculum WOULD EVER be put into place. We are still struggling to teach Johnny what 2+3 is and that bacon is bad for him. There's just more important things to focus on at a young age.
Separate note: Nice blog, guys.
in third grade we learn how to write checks and balance a checkbook why not start with like you said fragments of financial respondibility in first grade. Plus havn't we noticed by now that relying on parents to be models for their children is never a good bet. Relying on parents to teach their children about saving is ridiculous considering that the average household has 20,000 dollars of credit card debt.
Im not suggesting we have a finance class in first grade but a simple portion of learning will be helpful. For many children in America it is the system that is their saving grace not their parents, and lets remember: It takes a village to raise a child not simply two people
Third graders don't write checks! I've also never heard of them learning to. I know I didn't.
But anyway I agree that information can be inserted in fragments. Our government isn't setting a model either...and I'm talking Bush and Obama.
You are right about that but what do you expect? If a majority of the population has no idea how to be fiscally responsible what would make you think our elected representatives would have an idea? Just because their personal pockets are lined with cash doesn't mean they have the business sense to runa country responsibly. Actually a really interesting fact, most lawyers actually have terrible personal credit because of their student loan debt and thus make a majority of their expenditures and take out loans through their company which they use as a vehicle to move funds since their personal credit is bad. Funny enough that a majority of our legislators are lawyers haha
Hey, a couple of comments. While I think that more people having more information is a good thing and a great societal equalizer I caution of going too far with a high savings rate. The Chinese and Germans have very high savings rates and their countries have their own problems partly as a result of these facts. The Chinese have such high savings rates because there is no social safety net in China. So when someone gets sick they need to have enough money saved to get treatment. Also China doesn’t have social security so once again they need to save more during their lives. So if we eliminated our social safety net the savings rate would certainly increase. The Germans on the other hand have a strong social safety net yet also have a high savings rate. They have huge trade surpluses but have a history of a much higher unemployment then we have in the US.
I would also mention that demographically it makes sense that the savings rate was low in the past few years since the baby boomers really weren’t thinking about retiring. They were/ are concerned about building the best lives they could for their families. Kids are expensive. So I think we are going to see a higher savings rate due to these demographic factors.
I think introducing the concept of savings into elementary education is a great one, especially considering that the lesson of monetary responsibility is often neglected at home.
Furthermore, saving doesn't just generate more income, and in fact many banks no longer offer interest on savings accounts with less than $5-10,000. Saving means patience in purchasing, which is something an instant-gratification, credit-card-ridden society like ours doesn't understand. If we don't have the money to purchase something in the moment, we use a credit card to pay for it in the future. Why not just wait, save up some money, and purchase in the future? There's an element of immediate purchase power in the growing debt of households.
One of the most powerful math lessons I ever had was in high school, junior year, when we had a lesson about exponential growth and compound interest curves. Our teacher gave us a quick and dirty formula sheet that we could figure out accumulated interest based on whatever interest rates, percents, and principle balances we chose. I kept that in my wallet for a couple of years as a reminder (til I lost my wallet...). Anyway, if it doesn't get thorugh to everyone, it might get through to someone so debating about what age to start could be based on some pilot programs accessing retention on age groups. I personally think that there ought to be more focus in high school considering it is the first time that many individual start having jobs and making income, looking at the financial feasibility of continued education (student loan and debts), and starting retirement accounts. The one thing you never get back in the interest equations is time so starting early with smaller payments puts you ahead of someone saving more per interval later. How many of us debating have started our own savings in an IRA (Roth or not) or 401K through jobs?
I started a personal ROTH IRA just a few years back but have not received 401k benefits through employment yet. I do agee with you guys but high school is too late to start this. Partly because of what Madeline points out, that there is an instant gratification factor in our culture. As far as my time comment goes I think I should have explained that a bit better. With more money we have more freedom with time. For example, if I make 100,000 a year and save some of it for a vacation i am ultimately purchasing that time off (this is assuming one isn't getting some type of holiday pay) furthermore, If make 100,000 a year and place enough in a 401k or Roth IRA etc then I am ultimately purchasing time off in the future with the money I am saving now; hence my metaphor.
Post a Comment