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As I See It

Personal savings rates dismal in the good ol’ U.S.A.

Saving money is a learned trait that is influenced by our childhood years. If it was a priority for our parents, it’s more likely to be a priority for us than if we were raised in an asset-less home environment.

Several weeks ago, I attended a roundtable discussion on savings in America that was sponsored by Goldman Sachs and The Aspen Institute. Leaders from a wide variety of fields, including Gov. Haley Barbour and former Gov. William Winter, attended the meeting at the new Telcom Center in downtown Jackson. It was one of six meetings being conducted throughout the country to address this critical issue of savings in America.

Why all the interest in saving money and accumulating assets? The following statistics illustrate the implications of America’s dismal savings rate:

• The U.S. savings rate is the lowest of the 20 countries that make up the G-20 group. In 2003, our national savings rate was 1.6% compared to 38.6% in China, 25.3% in Saudi Arabia and 19.2% in South Korea.

• The U.S. savings rate has steadily declined for more than two decades, from a high of more than 10% in the 70’s to nothing today. Not since the Great Depression has our personal saving rate been so low.

• There is an increasing disparity between the haves and have-nots in America that is a growing threat to our stability. Between 1989 and 2004, while the average net worth of the wealthiest 25% of Americans grew 65%, the net worth of the bottom 25% did not change, hovering just below zero.

• Most households do not save enough to provide even half of their own support in retirement. The Congressional Budget Office has concluded that, even with Social Security and other benefits, roughly a quarter of Baby Boomers are totally unprepared for retirement.

Rainy days

This subject has always interested me because, unlike so many of my fellow Baby Boomers, I was raised in a working class family who stressed, perhaps overly so, the importance of saving for a rainy day. My parents had it tough during the Depression and were committed to being prepared for the next economic debacle.

However, this column is not about me. It’s about American society as a whole and what needs to happen to encourage savings in the U.S.

Before addressing what needs to happen to make things better, it seems prudent to dispel a popular misunderstanding about people and how they manage their money. The essence of savings is accumulating assets. Higher income does not equate to accumulating assets. Absent a savings mindset, more income may just result in more Bud Light.

Two things

Two things need to happen to change America’s savings habits: education and opportunity. Isn’t that true with just about everything?

People, particularly those in the middle- and lower-income brackets, need to learn basic economic principles. People can lift themselves up into the middle class but habits, including financial habits, have to be changed. Financial education needs to be a basic part of our education system to get youngsters started on the right path. In that way, parents can be influenced by what their children learn.

This is an appropriate time to plug Junior Achievement and the Mississippi Council on Economic Education, two groups that are working hard to promote basic financial education in the school system and they deserve our support, both time and money.

The second thing that needs to happen is developing the habit of accumulating assets. Home ownership is an extremely important first step along the road to financial independence. Equity in a home provides a financial cushion to absorb medical costs, college educations and start-up cash for a business. Plus, homeowners are usually better citizens with stronger ties to the community and a sense of pride in their financial accomplishments.

One program that is showing real promise of elevating folks into the middle class is the Individual Development Accounts initiative. Lower income folks are encouraged to save some of their funds for a down payment on a home and some, or all, of their contribution is matched by non-profits that sponsor this program. I particularly like this program because it requires sacrifice by the saver and is not just another hand-out program, which does nothing but hand out money without addressing the underlying problems.

Back to the Boomers

What about the Boomers and others in the higher income brackets? Our generation has been handed life on a silver platter by the sacrifices of our parents in the Greatest Generation. We don’t save because we are devoted to spending everything we get our hands on. We have the resources to set aside for emergencies and retirement, but we just don’t do it.

It’s not too late, but it is getting close to it. Most retirement funds are accumulated during the years of our 50s and 60s.

Boomers are in those years right now. For most of us, the kids are educated and gone, or should be, and we’re enjoying the good life.

The hour is late, but there’s still time to change our habits and start accumulating assets to provide for retiring in the style we’ve become accustomed to.

Thought for the Moment

The small choices and decisions we make a hundred times a day add up to determining the kind of world we live in. — Rabbi Harold S. Kushner

Joe D. Jones, CPA (retired), is publisher of the Mississippi Business Journal. Contact him at cpajones@msbusiness.com.

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