NCPA - National Center for Policy Analysis

We Are Right To Put Money Away; Government Is Wrong To Discourage Us

August 16, 2010

The U.S. private savings rate has soared even as the reward for saving has tanked.  In fact, Americans are doing all they can to reduce their debts and put money away for rainy days, and the federal, state and local governments are doing all they can to pile debts onto our backs, reward borrowing and punish saving, says Steve Stanek, a research fellow at the Heartland Institute. 

Some facts: 

  • The amount of revolving credit debt outstanding -- primarily credit card debt -- has declined for 20 consecutive months, according to the Federal Reserve.
  • The U.S. savings rate has gone from nearly nil just before the recession to 6.4 percent in June; it has remained above 5 percent since October 2008 and for the past two years, Americans have been putting money away at rates unheard of in the financial bubble years.
  • This is happening even though bank savings and money-market accounts are paying virtually nothing; IMoneyNet, which tracks money-market funds, reports average fund yields are just 0.04 percent, and a quarter of money-market funds yield nothing (for instance, with an average return of just 0.04 percent, a $10,000 investment returns $4 in a year).
  • The Federal Reserve has done this to savers by intentionally driving interest rates to nearly nothing; this week Fed officials announced they might pour even more money into bond markets to keep interest rates low.
  • The world's largest borrower is the U.S. government, followed by state and local governments collectively; the national debt stands at $13.3 trillion -- about $43,075 for each man, woman, and child in the United States, because they earn virtually nothing on their money. 

Some White House officials and others, not content with the ways government policies already discourage saving, are trying to encourage people to spend more money, arguing it's needed to grow the economy. 

Encouraging people to spend rather than save is the wrong policy for the current time, says Stanek.  The more money people save, the more financially secure they are.  And the more secure people are, the more likely they are to start spending and investing. 

Americans are right to be saving money to increase their financial security.  Spending beyond our means -- both in government and in our personal lives -- caused the bubble that led to the crisis.  Most Americans know this, says Stanek.  

Source: Steve Stanek , "We Are Right To Put Money Away; Gov't Is Wrong To Discourage Us,", August 12, 2010. 

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