Angelo is an aspiring entrepreneur, think tank, and problem solver. He obtained a B.Sc. in Aviation Management from Florida Tech.
What factors in the financial system encourage or discourage savings? Are there any changes in the system that could improve savings rates?
Americans have an appetite for spending and spending is actually incentivized by the government through stimulus packages. According to Investopedia, one of the two primary goals of a stimulus package is to encourage people to spend, the other is to strengthen the economy by boosting employment. Stimulus packages are seen as a means of stemming a recession. It is during periods of financial trouble that the government usually indulges in these stimulus packages which mainly come in the form of tax breaks for certain goods and services, for example, buying a new car, or adding solar panels to one’s new roof.
The American saver is also plagued by an abundant availability of relatively cheap credit and a society that encourages the utilization of credit which causes indebtedness to become typical. Expect the fake-til-you-make-it culture to prevail as President Donald Trump proudly embraces the moniker, "The King of Debt," and stands as an example of an individual who has leveraged his way to success by way of borrowing. Consider these facts as provided by debt.org:
- More than 160 million Americans have credit cards.
- The average credit card holder has at least three cards.
- On average, each household with a credit card carries more than $15,000 in credit card debt.
- Total U.S. consumer debt is at $11.4 trillion. That includes mortgages, auto loans, credit cards and student loans.
Hopefully, millennials learn to balance their spending better than previous generations. Millennials have seen and learned from the mistakes of their parents, taking lessons from the 1980s, early 2000s and the 2007–2009 financial crisis. But before young American adults can become savings conscious they have already acquired a sizeable debt making it very difficult to save. However, the emphasis or the source of primary concern is the anemic level of retirement savings. There are major worries that the government’s pay-as-you-go pension plan known as Social Security will not have sufficient funds to cover sums being paid out to a booming population of retirees. Fears about the viability of the Federal Old Age and Disability Program (Social Security) is pluralized by the disappearance or downsizing of government-sponsored and corporate-sponsored pension plans. Corporations, as well as government agencies, are cutting pensions plans as a way of cutting cost or for mere survival. Hence there is a real threat that millions could become public charges.
At this point, Social Security needs to be restructured in order to provide reserves, investment in real assets, and to raise the cap on the maximum number of workers paying into the fund. This would shore up the viability of the program.
You May Want to Reconsider Breaking the Piggy Bank
The Problem Is Real
Should saving be the sole responsibility of individual citizens, or should corporations, financial institutions and markets, and government agencies have active roles in regulating what people put away for the future?
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Emphasis on individual responsibility is growing as corporations abandon employee pension plans to save money, and governments at all levels are reducing pension program benefits, so what options do employees have to save for retirement unless financial institutions establish new or different practices?
People are living longer and so individuals must be prepared to live into their 90’s as this is becoming a reality. Failure to make savings a priority may result in millions becoming the charge of the state, a burden to taxpayers and corporations. Learn Vest shared research with Forbes magazine which indicated that:
Those 35 to 44 years old have $22,500 saved on average, and those aged 45 to 54 have just less than $44,000 stowed away. The average 55 to 64-year-olds only have about $65,000 in savings and those 65 and older have saved $56,000.
People need to consider what kind of income they will need in their retirement and start saving for it but with a potential crisis at hand, savings has to be a priority for corporations and the government. Laws need to be reconsidered in order to not crash retirement savings programs. For example, the retirement age might need to be pushed to 70 (Yep, that's how serious the problem is). Corporations can do their part by increasing the percentage of employee savings matched. Financial institutions and markets can also play an important role by creating new products to help individuals save for retirement. The reverse annuity mortgage and life insurance annuity are examples of products that help individuals manage the possibility of outliving their retirement savings. We need more innovative products like these.
How is Your Savings Looking?
Fay, B. (2017). Americans in Debt – Causes, Solutions & Legal Protections of Debt. Debt.org. Retrieved 9 April 2017, from https://www.debt.org/faqs/americans-in-debt/
Learn Vest. (2017). Forbes.com. Retrieved 9 April 2017, from https://www.forbes.com/sites/learnvest/2013/02/25/with-retirement-savings-how-do-you-compare-others-your-age/#7689b4231e11
Staff, I. (2003). Recession. Investopedia. Retrieved 9 April 2017, from http://www.investopedia.com/terms/r/recession.asp
This content reflects the personal opinions of the author. It is accurate and true to the best of the author’s knowledge and should not be substituted for impartial fact or advice in legal, political, or personal matters.
© 2017 Angelo