A LOT MORE THAN A PENNY EARNED
June 6, 2008
Ronald T. Wilcox, a business professor at the University of Virginia, offers practical advice to individual savers in a new book, "Whatever Happened to Thrift?" Wilcox believes that by any imaginable standard, Americans save too little. However, he fails to acknowledge some basic economic facts, says Steven E. Landsburg, author of "More Sex Is Safer Sex: The Unconventional Wisdom of Economics."
- Like philanthropy, saving is an act of self-denial that enriches your neighbors (by leaving more goods available for them to consume).
- Unlike philanthropy, saving is punished by the tax system (via the taxes on interest, dividends, capital gains and inheritance).
- When you tax saving, you encourage people -- wealthy people in particular -- to spend more and grab a larger share of the consumption pie; thus in principle, a consumption tax would be preferable to the current tax code, says Landsburg.
Wilcox also stresses education, and indeed the single best investment you can make in your children's future is to teach them the returns to saving:
- Invest $1,000 a month in 3 percent bonds and in 40 years you'll have almost a million dollars.
- Invest the same $1,000 a month in a diversified portfolio of stocks earning the historical average of 8 percent and you'll have more than $3.5 million.
Moral: Stick with low-fee funds. Bigger moral: There are some very simple things that we can all do to become wiser investors, says Landsburg.
Source: Steven E. Landsburg, "A Lot More Than a Penny Earned," Wall Street Journal, June 5, 2008.
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