Inspired by this thread.
What would happen if every single American saved $1 million?
$100 per week in an IRA from age 22 through 65 at a relatively modest 6% growth gets you there (according to my simple spreadsheet).
(Yeah, that is $200 to much for an IRA, but $100 is rounder than $96 :))
Consumer spending would go down and people would retire as millionaires.
BTW, I think the typical IRA limit is $5,500. Aren’t you talking about saving $5,200 per year?
Ah, I was using the old limit of $5000 (see what happens when you retire).
I’m not actually sure that money in an IRA counts as “savings”. Isn’t that mostly invested, which is where the growth comes from?
And speaking of that growth, these trillions of dollars would all be in the hands of banks and other institutions that would ‘work’ the money, lending it out and such. This would be a huge and ongoing stimulus to the economy.
The problem with “everyone” saving is saved money is just saved pieces of paper.
To take the reductio ad absurdum, if everyone saved a million dollars and then retired, everyone’s million dollars would be worthless, because with everyone retired there would be no workers providing goods and services in exchange for that money.
You always have to produce the goods and services to be consumed before they can be consumed. So any real intergenerational savings has to be done by producing goods today that will be consumed later, or producing capital goods today that will make producing future goods easier. Build Hoover Dam today, and it will produce electricity for generations.
And the problem with our current economy isn’t that there’s a shortage of capital investment, the problem is that there’s a giant reservoir of capital but no productive businesses to invest that capital in. Apple has billions in cash reserves. Why aren’t they building factories to churn out more iPhones, then? Because they think the market for iPhones is saturated, and if they produce more they’d have to sell them for a lot less. OK, invest in other markets? Yeah, but what? And this is how a company like Uber can be bid up to a value of $69 billion.
What economy? You’ve just taken three hundred trillion dollars out of circulation.
Savings are nice. Investments are nice. But what ultimately drives an economy is people buying things. No business can succeed if it doesn’t have customers. And the scenario the OP described is a massive shift away from people spending money. The result would be a huge depression.
On a more focused note, nobody would be getting six percent returns on their savings. Interest rates are driven by the amount of investment capital available. The OP’s scenario would create a huge pool of investment capital and destroy its value. There would be so much money available for lending, banks would have a hard time finding enough people to loan it to. Interest rates would collapse. Banks would become the equivalent of mattresses. People would put their money into banks and then it would sit there accumulating no interest.
Or even negative interest. That’s a thing, even though it seems nonsensical.
Ahem. I would like to call attention to the fact that, by the OP’s calculations, people would only have to stow $100 a week to achieve this eventual aim. This would not kill all spending.
Let’s say his numbers are bad, and people would instead have to stow $200 a week. This would also not kill all spending.
Cite: I stow $500 a week, and spend like a mofo. Now, I make pretty good money, but I’m also stowing five times the stated amount. If I made less, I would stow less, and still could probably make that $100 mark, unless I made a lot less.
Which I guess brings us to the real immediate downside to this plan - if everyone stuck to it beyond all sense of reason, then everyone who makes less than $100 a week will starve/freeze. And I’m pretty sure things get weird if you don’t exclude the people making no money at all.
Yea, the only problem is that if you are starting as a 22 year old, by the time you get your million, a million won’t be worth nearly as much.
About one in seven Americans lives in poverty. The most you can earn, as a family of four, and still be impoverished, is $23,550. That’s about $450 a week for all expenses for your family of four–rent, childcare, food, health care, everything. And plenty of folks in poverty earn significantly less than that cutoff rate.
You’re thinking folks in poverty could afford to give up $100 a week to put in savings?
If you’re talking to me, then you’re right that my “everyone who makes less than $100 a week” remark should have actually said “everyone who doesn’t make enough more than $100 a week to survive on”. This saving plan is obviously only possible for people who aren’t scraping by (or failing to scrape by).
The majority of people do not have that much discretionary income. Especially if you are talking about individuals. 42% of individuals in the country make $25k or less per year. They would have to cut out almost all non-vital spending to make this work. Hell, more people make less $5k (9.24%) than make $100k or more (9.15%).
Looked at another way, how much would this actually pull out of the economy? It depends, on assumptions. Based on some number crunching, the per capita savings amount in the U.S. is actually around $10k per year. If everyone in the country saved exactly $5200 per year, then spending would go up. But considering that today the average savings rate for those under 35 is negative, if we just set a floor for everyone, a lot of money would go out of circulation.
ETA extra link
It would actually be at least $200 per week, since this is about every person, not every household.
It’s pretty clear that there are a few different categories can fall into:
People who don’t have $100 per week to start with. Obviously they can’t do this.
People who make over $100 per week, but can’t possibly survive if they lost that $100. Obviously they can’t do this either - surviving to 65 is part of the plan.
People who could lose the $100 and survive, but it would suck. Here’s where the magic happens - these people would have to give up smoking, drinking, snacks, TV, balanced diets, or whatever it took to scrape together that $100 a week. They currently don’t because they have no motivation whatsoever to do so. The OP’s plan presumes they have the motivation to do so.
People who could lose the $100 and it would involve lifestyle changes but still be okay. For these people it would involve lifestyle changes but still be okay.
People who could lose the $100 - and already do put that into some kind of savings, 401k, whatever, so there’s no change at all.
I honestly don’t know where the breakdown between these categories are. But I’m pretty sure that categories 4 and 5 have some people in them, and 3 probably does too.
That’s not correct. To generate a return, the money has to be loaned out at a profit - i.e. put back into circulation.
Still nothing to sniff at.
My spreadsheet covers a 43 year span (22-65). 41 years ago, my first employer put $2100 into a retirement account for me. I have not deposited or withdrawn a penny and it is worth $75,000.
I now wish I had put $40/week in it.
I think it would inject a ton of extra capital into our system that would be available for investment. Since not everyone would retire at the same time or use the money, in the same way, I don’t see any issues with this, though obviously, you’d have less domestic spending to the tune of $200-300 billion per week (assuming people don’t already save some amount of that anyway)…which is bound to do some bad things in the short term to the economy (which begs the question of what folks would do for work if people weren’t spending money on immediate consumption). :eek:
Sorry, I can’t get on board with this speculation. It sounds an awful lot like “Why, let them eat cake!” As others have pointed out, a majority of Americans could not afford the $100 per week.
The majority? I think the majority of Americans COULD afford $100 a week, it’s just that they choose to do other things. Certainly, a large minority of Americans simply don’t have $400 in disposable income, even when you take away cell phones, cars that are more than basic transport, the internet, cigarettes, booze and assorted other things people spend their money on, but this doesn’t constitute a majority.
at age 22, $100 would have been my entire paycheck.
I’d have been a millionaire corpse?