Academic journal article Journal of Financial Counseling and Planning

Whatever Happened to Thrift?: Why Americans Don't Save and What to Do about It

Academic journal article Journal of Financial Counseling and Planning

Whatever Happened to Thrift?: Why Americans Don't Save and What to Do about It

Article excerpt

Whatever Happened to Thrift?: Why Americans Don't Save and What to Do About It Rebecca J. Travnichek Author: Ronald T. Wilcox Publisher: Yale University Press ISBN 978-0-300-12451-4

Whatever Happened to Thrift?: Why Americans Don't Save and What to Do About It is designed to illuminate the lack of savings by individuals and families in the United States. Identified as a national crisis by the author, he states that "Americans are the world's prodigal sons, spending all their riches today and guaranteeing themselves a place in the poorhouse of tomorrow" (p. 1). He asks readers to consider the following questions: does the United States save too little, why don't we save, how can public policy increase savings, how can employers increase employee savings, and what can households do to save?

Until very recently, research reports and media outlets cited measures of the U.S. savings rate sinking to almost an all-time low, about the same as during the Great Depression. In Chapter 1, "Do Americans Save Too Little?," the author uses research results from economics, finance, marketing, and psychology as a spring board to discuss the problem of household savings; indicating that "this book is an unapologetic attempt to reinvent thrift in the United States, to find practical ways to help people consume less and save more" (p. 2). Rather than smart spending tips, the author suggests looking for meaningful solutions. There is no "one size fits all" solution. Without households choosing to save, businesses will not be able to borrow money to assist in developing the next medical cure, improve technology, or a host of other things.

The author dissects how household savings is measured. It is "simply the difference between what a household earns over a given period of time and what it consumes during that period" (p. 5). Additional measures of savings explained, compared, and contrasted include the U.S. Department of Commerce's National Income and Product Accounts (NIPA) and the Board of Governors of the Federal Reserve's Flow of Funds (FOF).

Chapter 2, "Why Americans Don't Save Enough?," attempts to help the reader understand why Americans save so little. It is divided into specific reasons why the savings record is low in the United States. The first two reasons deal with overconsumption: they are easy access to consumer credit and employees who are overworked by greedy corporations. These two reasons have low merit in the author's eyes and are what he terms shallow "cocktail theories."

Not only 'keeping up with the Joneses,' but surpassing the Joneses is the third reason. Education and income levels seem to be the pervasive thoughts regarding peer-pressure into overconsumption, leading to what the author calls a "consumption superdisparity."

American optimism, reason four for the low U.S. savings rate, has sometimes been our downfall. Feeling and believing we have control over the random events in our lives may only be an illusion. Optimism has provided great things, including the founding of our nation, but it has also led to thoughts of "we do not need to save money today, because tomorrow we will enjoy a great deal of success."

The fifth reason that Americans do not save is that baby boomers will be a very large elderly voting contingent who, if they have not saved adequately for retirement, will pressure legislators "to vote for measures that transfer wealth from the people who have saved responsibly to those who have not." Since this is a known possibility, many feel there is no reason to save if what they have saved will be taxed more and more.

The sixth reason for low savings rates in the U.S. stems from a comment made by Ben Bernanke, chairman of the Federal Reserve Board, related to what he called the "glut of savings." This actually relates to other developed countries' governments encouraging savings by their citizens which they then convert into U.S. Treasuries. Doing this keeps U. …

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