# Americans saving less money. Discuss? **URL:** \ **Category:** Great Debates\ **Created:** [January 31, 2006, 3:39am UTC](https://boards.straightdope.com/t/americans-saving-less-money-discuss/342307 "2006-01-31T03:39:10Z")\ **Posts on this page:** 7\ **Page:** 3
**Author:** ![Kimstu](https://avatars.discourse-cdn.com/v4/letter/k/ecd19e/32.png) [@Kimstu](https://boards.straightdope.com/u/Kimstu)\ **Post date:** [February 3, 2006, 4:59pm UTC](https://boards.straightdope.com/t/americans-saving-less-money-discuss/342307/41 "2006-02-03T16:59:02Z")
Thanks for the suggestions, folks! Let me see: > [@Sam Stone](#): > > For example, consider the effects of government policy. When did mortgage interest become tax deductible in the U.S.? 1916, with the introduction of the federal income tax. The interest deduction at that time applied mostly to business loans because few people had home mortgages, but AFAIK it’s always been applicable to mortgage interest. > [@Sam Stone](#): > > Widespread availability of health insurance could drive down savings rates, because people feel less need to save money to cover their unexpected health care bills. Yeah, but health insurance coverage has been getting **less** widespread among Americans and significantly more expensive, so that doesn’t sound likely to be a significant factor in the reduction in savings. > [@Sam Stone](#): > > In fact, all of the ‘safety net’ programs, which reduce the consequences of bad luck or bad choice, are going to make it less likely for people to prepare to care for themselves. Before there was unemployment insurance, people would save money to tide them over between jobs. Now they don’t have to. But again, your timing seems way off here. Legislated unemployment insurance dates back [at least to the 1940’s](http://www.hrsdc.gc.ca/asp/gateway.asp?hr=/en/ei/history/unemployment_insurance.shtml&hs=tyt). And I don’t see why other “safety net” programs would produce the decline we’ve seen in savings rates since just the mid-1980’s, when such programs were arguably **more** generous than they are now. > [@Sam Stone](#): > > 1. Low unemployment. Back in the 1980’s when unemployment was close to 10%, it was much riskier to be in debt. Not only because people felt their own jobs were insecure, but if you lost a job it could take a much longer time to find a new one. But unemployment has been historically low for over a decade now, which may make people feel they can take more risks. Nope, the average duration of joblessness for the unemployed has actually been [increasing](http://zmagsite.zmag.org/Feb2004/duboff0204.html) in recent decades, even though the unemployment rate has declined. > [@Sam Stone](#): > > 1. Changes to bankruptcy laws. As I recall, changes have been made in the last decade that makes it easier to declare bankruptcy. This also lowers the risk of carrying large amounts of debt. Which changes are you thinking of? The most recent bankruptcy law change (pdf) that seems to have been criticized as too generous to individual debtors was the Bankruptcy Reform Act of 1978. The article comments that “subsequent amendments have tilted the scales back in favor of creditors”, namely the Bankruptcy Amendments of 1984 and Bankruptcy Reform Act of 1994. In 2005, of course, a major overhaul of bankruptcy legislation was passed, but it too tends to make individual bankruptcy harder, not easier. The other factors suggested by you and **Maeglin** , such as low interest rates, easy credit, rising prices, stagnant real wages, etc., seem more plausible as explanations for our vanishing savings. But I’m not sure they all add up to what I’d call a **rational** trend in decisions about saving. ---
**Author:** ![Maeglin](https://avatars.discourse-cdn.com/v4/letter/m/8baadc/32.png) [@Maeglin](https://boards.straightdope.com/u/Maeglin)\ **Post date:** [February 3, 2006, 6:49pm UTC](https://boards.straightdope.com/t/americans-saving-less-money-discuss/342307/42 "2006-02-03T18:49:48Z")
> [@Kimstu](#): > > The other factors suggested by you and **Maeglin** , such as low interest rates, easy credit, rising prices, stagnant real wages, etc., seem more plausible as explanations for our vanishing savings. But I’m not sure they all add up to what I’d call a **rational** trend in decisions about saving. I don’t want to jump on this boring old merry-go-round again, but here “rational” should not have any normative value. Substitute “goal-directed, utility-maximizing, and nonrandom” for rational and it will be easier to swallow. ---
**Author:** ![Kimstu](https://avatars.discourse-cdn.com/v4/letter/k/ecd19e/32.png) [@Kimstu](https://boards.straightdope.com/u/Kimstu)\ **Post date:** [February 3, 2006, 6:55pm UTC](https://boards.straightdope.com/t/americans-saving-less-money-discuss/342307/43 "2006-02-03T18:55:03Z")
> [@Maeglin](#): > > Substitute “goal-directed, utility-maximizing, and nonrandom” for rational and it will be easier to swallow. Okay, but the problem is that I can’t identify a self-consistent “goal” or “utility” that this trend of diminishing savings is directed toward. I grant you that “rational” behavior in this case doesn’t have to correspond to “behavior that I think is wise”. But what “rational” strategy **does** it correspond to? ---
**Author:** ![Maeglin](https://avatars.discourse-cdn.com/v4/letter/m/8baadc/32.png) [@Maeglin](https://boards.straightdope.com/u/Maeglin)\ **Post date:** [February 3, 2006, 7:08pm UTC](https://boards.straightdope.com/t/americans-saving-less-money-discuss/342307/44 "2006-02-03T19:08:58Z")
> [@Kimstu](#): > > Okay, but the problem is that I can’t identify a self-consistent “goal” or “utility” that this trend of diminishing savings is directed toward. I grant you that “rational” behavior in this case doesn’t have to correspond to “behavior that I think is wise”. But what “rational” strategy **does** it correspond to? In this case, I think that the strategy is a monotonically increasing function of type. 🙂 Suppose you have a group of people. All of them are different in only one respect. their _discount rate_. For person _i_, a bird in the hand is worth two in the bush. For person _j_, a bird in the hand is worth three, etc. Everyone in the set of individuals can be indexed by how much cash next week would equal X amount of cash today. I know you can work out the rest. The more cash it takes next week to equal cash today, the more likely you are going to spend it today rather than wait. As future gains appear smaller and smaller, more kinds of people are inclined to spend now rather than wait it out. I believe there are two forces in play that affect this calculation. US prosperity is still running reasonably high, so most people are not expecting catastrophe tomorrow. At the same time, the flawed fundamentals of the world economy do not induce people to save in the United States. So while things are still good and the return to saving stinks, why not spend? Put saving off when the returns are higher. When people get a large return to a cheap new car or a next gen Playstation _and_ they value present consumption over future consumption by some critical amount, they will spend rather than save. As the utility on the present consumption increases and the likelihood of high future consumption decreases, we should expect to see incrementally more people switching from saving to spending. I really do hope you found this helpful. I am usually not the kind of person who says that _anything_ is easier to communicate mathematically, but in this case, it really is. ---
**Author:** ![wonky](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/wonky/32/393_2.png) [@wonky](https://boards.straightdope.com/u/wonky)\ **Post date:** [February 3, 2006, 7:14pm UTC](https://boards.straightdope.com/t/americans-saving-less-money-discuss/342307/45 "2006-02-03T19:14:45Z")
Considering that health care is one of the, if not the, major causes of bankruptcy, I’d suspect that health care is one of the, if not the, major depletors of savings. It certainly has been for me. I am in debt because of health care. ---
**Author:** ![D\_Odds](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/d_odds/32/2882_2.png) [@D\_Odds](https://boards.straightdope.com/u/D_Odds)\ **Post date:** [February 3, 2006, 11:47pm UTC](https://boards.straightdope.com/t/americans-saving-less-money-discuss/342307/46 "2006-02-03T23:47:22Z")
> [@Lissa](#): > > What surprises me is the number of couples I know who aren’t saving a penny, and don’t \*have \*a pension. > > My husband works for the state in corrections. The minimum salary one earns at his institution is about $35 K, and can be considerably more. Last month, the place exploded in outrage, because the inisitution is switching over to direct deposit, and a surprisingly large number of the employees _don’t have bank accounts._ > > He recently spoke to an employee who returned from a pre-retirement conference very dejected. He found out he’s only going to be making about 70% of his salary, and he told Hubby he _can’t_ retire. The amazing part is that he lives in one of the houses that are provided by the instiution and only pays $200 a month in rent. His kids are grown, and they didn’t go to college. But, he’d have to leave the institution’s house if he retired, and he told Hubby that he has no assets to buy another. He and his wife spent every dime of his salary and have mountains of bills on top of it. > > Another couple I know has no savings or retirement benefits. They do own a house, but they keep refinancing to pay off bills. Both of them make pretty good money, but they spend it all. God only knows what they’ll do when they retire. I’ve gingerly broached the subject, and from their answers, they don’t know themselves. They just don’t think about it. > > I once read an article which claimed that when my generation reaches retirement age, we’ll see the world’s largest yard sale. All of the luxuries that people spent their salaries on will have to be sold because they can’t afford them any more. Plus it is almost guaranteed that these couples taught their offspring the same bad habits. As much as I prefer for parents to take responsibility for educating their children in subjects outside of the school curriculum, this is not one of those cases. Some parents simply are not wise enough. Household economics needs to be taught in junior high and high schools. Arm people with knowledge prior to when they go out and finance their first car or first house. Students entering the workforce should understand the power of early retirement planning and the value of the extra compounding one gets when one starts to save for retirement at age 22 instead of 30. They should learn the dangers and pitfalls of credit cards, which seem like plastic magic Mommy and Daddy pull out of their pocket that gets them things. Certainly, some parents are smart enough to pass on advanced knowledge of these subjects, but that doesn’t help the people **Lissa** cited. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [February 4, 2006, 12:35am UTC](https://boards.straightdope.com/t/americans-saving-less-money-discuss/342307/47 "2006-02-04T00:35:20Z")
> [@Kimstu](#): > > The other factors suggested by you and **Maeglin** , such as low interest rates, easy credit, rising prices, stagnant real wages, etc., seem more plausible as explanations for our vanishing savings. But I’m not sure they all add up to what I’d call a **rational** trend in decisions about saving. As someone who was around back then, let me remind you that while interest rates were high, inflation was still higher. (And not everyone could get into investments with the high interest rates.) In times of high inflation, purchasing becomes more rational than savings. While unemployment did spike, most people were still in the mindset of having one or very few employers. So that’s not it. Single earner families with a given income are more efficient than dual earner families with the same income. There is less expenditure on meals, child care, clothing, transportation. This could explain some of it also. BTW, those of you who think that people make rational economic decisions should read up on behavioral economics. (Warning - pdf). [Previous page](https://boards.straightdope.com/t/americans-saving-less-money-discuss/342307.md?page=2)