Forget 1999 – Americans are saving like it’s 1933.
In 2005, the national savings rate was negative for the first time since the Great Depression. The average American spent every penny of what he earned last year, then went into debt so he could spend 0.5 percent more. That means a family that earned $100,000 spent $100,000, saved $0, then went into debt to spend another $500.
Forget trivialities like buying a house, sending the kids to college and paying for retirement. Circuit City it is.
I’ll give Joe Sixpack a pass on not putting money away in 1932 and 1933, the only years the national savings rate has been negative since the statistic was invented. The Great Depression was happening. When you’re worried about putting food on the table and not getting thrown out on the street, retirement has a way of falling off your radar screen. Even today, unfortunately, about one out of eight Americans lives in poverty and millions more have trouble making ends meet, so I’m not blaming the working poor.
But a negative savings rate in 2005? Really? This isn’t about President Bush’s economic policy, the struggling auto industry, Sept. 11 or any other short-term factor. The unemployment rate in December 2005 was 4.9 percent, well below historical averages. Besides, we’ve had plenty of recessions, bear markets, and mass layoffs since the Great Depression, and the average American still always managed to end the year in the black. Always. Until now.
To most college students, getting the latest Xbox or planning that perfect spring break trip is much more important than figuring out how an IRA works. That’s only natural, and it’s perfectly fine. The problem, though, is that these cavalier financial attitudes are no longer stopping when people get their first real job or get married or have kids. Everyone except the handful of Bill Gates Jrs. out there is going to have to save eventually. Love New York? Plan on spending at least $1 million on your house. Want to send three kids to the University from out of state? How does $400,000 sound? You get the picture.
In case you think I sound like your parents, let me be perfectly clear: This is not your problem. You’re not making much money anyway, so I’m not blaming the lack of national savings on Winter Tan Girl from your psych class. This is your dad’s problem, your older sister’s problem and Uncle Rick’s problem. It’ll be your problem eventually, but only if you decide to buy houses you can’t afford and think your ski trip is free because you’re armed with a Capital One No Hassle Card.
Actually, I just lied. It will be your problem eventually, no matter what you do. It’ll be your problem because when Uncle Rick reaches age 65 and realizes he barely saved anything for retirement, he’s not going to look around and say: “Okay, I guess I’ll be poor now.” No. He’s going to want the government to pick up the slack, and since the Baby Boomers are the biggest generation since, um, ever, he’ll get what he wants and it’ll mean more taxes for every responsible, hard-working family out there.
The negative savings rate hasn’t gotten much attention in Washington. Was a line or two in the State of the Union too much to ask? “Producing ethanol from wood chips and stalks or switch grass” made the cut. How about throwing in a good word for bank accounts? We could use it. If your boss offered to give you $1 for every $1 you saved in a retirement account (about four out of five employers offer some kind of matching contribution), would you take him up on it? Even if you said “it would be stupid not to,” your taxes will still probably go to help pay for the retirements of the 25 percent of eligible workers who tell their boss to keep his money.
Right now, the negative savings rate is one of a long list of Real Problems (the budget deficit, global warming, Medicare) that the government is happy to ignore in favor of fake problems like gay marriage. Even if President Bush made savings a national priority, though, progress would probably be slow. This is the country where I can wake up in the morning to 760 WJR, a mainstream station that caters to adults, and hear a commercial that promises to “obliterate the myth that you need a down payment to purchase a home.”
How about making the down payment, leaving the Lexus for later and saving $10,000 per year for 40 years at an 8-percent rate of return? You’ll end up with $3 million bucks. And you’ll need it to bail out your parents.
Kaplan can be reached at firstname.lastname@example.org.