Newspaper article The Florida Times Union

Saving More Is No Quick Fix, but Better in Long Run

Newspaper article The Florida Times Union

Saving More Is No Quick Fix, but Better in Long Run

Article excerpt

Byline: Malcolm Noden

Note to readers: Plain Speak is a new My Nassau Sun column that aims to sidestep economic jargon and discuss - in everyday terms - how and why our daily lives and communities are affected by the economy. It will run the fourth Saturday of each month.

There is a raging argument going on between economists (don't worry, there's always a raging argument going on between economists), regarding what will happen if the American public goes back to saving more of its money instead of spending more.

Late last year, The Economist magazine provided us some insight.

The magazine summarized our past savings habits by examining the country's savings rate (our income minus how much we spend, then that number divided by our income.)

In the 1980s, we saved about 9 percent of our income. By the 1990s, the rate fell to about 5 percent, and in the first four years of this century we were down to about 2 percent. From 2005 through 2007, we saved only a half percent.

The latest information does show, however, that in January, the rate actually increased temporarily to 5 percent.

So what would happen if we went back to regularly saving 5 percent of what we earn?

The nasty surprise answer is a recession, and when we are already in a deep one, as we are at the moment, an even longer recession would result.

If our country's savings rate went from a half percent to 5 percent over the course of a year, consumer spending would fall by approximately $500 billion.

Businesses catering to discretionary purchases would be very hard hit. Clothing and furniture stores, restaurants and the entire tourism business would suffer first and the most.

That would lead to a major downturn in employment and the downward economic spiral would continue unabated.

Obviously, there are many reasons why we as a nation save so little. Like so many other things in life, saving money is a habit, and one that is easy to learn but just as easy to forget.

When our economy makes it attractive for us to buy stuff - by reducing prices and lowering the interest rates we pay for credit - we tend to follow the example of others in a whirl of consumption. …

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