Newspaper article The Christian Science Monitor

Why Won't Americans Save?

Newspaper article The Christian Science Monitor

Why Won't Americans Save?

Article excerpt

The editorial "Americans and Saving," Oct. 4, fails to recognize the primary reason behind the decline in the US savings rate. Over the last 30 years, the policy of government has been to provide for the people in time of need. This provision has taken form through welfare, Social Security, and unemployment benefit programs, to name a few. Two detrimental effects to society are related to this policy.

First, these government programs cost money. Productive members of society pay an increasingly large share of their income as taxes to finance these programs, leaving less money for savings.

Second, a whole generation of Americans has come to expect the government to provide for them in time of need. Accordingly many Americans, especially young ones, when employed tend to spend all their income on material goods, rather than save. They have learned that there is no need to save for the proverbial rainy day. Money will always be there from the government.

The way to reverse the savings decline, as well as to improve the economic well-being of the nation, is to decrease the tax burden on society with a corresponding decrease in government social spending. The benefits would be immediate. People would have more money available for savings, and they would save due to the knowledge that the government will no longer serve as their rainy-day fund. Peter D. Konetchy, Byron, Mich.

The editorial misses two major disincentives for savings. First, as interest rates decline for borrowing, so do interest rates on savings. A lower return on savings encourages Americans either to buy now, as the government is urging them to do to help stimulate the economy, or to pay off debt for which interest rates are not declining.

Second, the current income tax on interest income exceeding a low limit discourages anyone from saving large amounts. A higher allowance would greatly increase savings, creating funding for loans and investments and consequent employment to replace the taxes lost. …

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