Our expression “saving for a rainy day” recalls the times when families stored wood in the shed and food in the cellar and pantry for seasons when it was difficult or impossible to go out to fetch them. Why do they not store money in the bank now for the time of unemployment or old age when it cannot be made?
There is an answer to that question in a study made by The Brookings Institution, which analyzes the incomes and savings of families in our richest year, 1929.
In that year, the study found, families with incomes under $1,000 spent, on the average, more than they received. They drew on past savings or got outside help or went into debt. Those families with incomes of less than $1,000 represented a fifth of all the families of the Nation in 1929.
Families with incomes of $1,000 to $1,500 kept even, on the average, but saved little, especially in the cities where everything had to be bought and living costs were higher. These families represented another fifth of all the families in that year.
Thus the study found that about 40 percent of our families saved very little, as a group, in our richest year for the hard times that were coming.
Practically all the savings of that prosperous year were made by the families at the top of the money ladder.
About 10 percent of us had family incomes over $4,600. They were found to have made 86 percent of all the savings.
Another 10 percent had family incomes of $3,100 to $4,600. They were found to have made 12 percent of all the savings.
The great majority of American families–the 80 percent who had incomes under $3,100 in 1929–were found by that study to have saved only 2 percent of all that families saved that year.
Could the 80 percent have saved more than they did?
The Brookings study declared that at 1929 prices a family income of $2,000 “may perhaps be regarded as sufficient to supply only basic necessities.” An income of $2,500 was “a very moderate one.”
Even low income families today are likely to regard as necessities things which their parents may have done without, such as running water, electricity, haircuts, movies, a greater variety in clothing and diet. It costs more to be sick. Medical care is better and, hence, more expensive. An employee who loses time from his job because of sickness often loses pay and sometimes loses the job as well.
But what would be the result if all families did save as much as they could by doing without all but the barest necessities?
The families who now save little–those with low and moderate incomes–make up a large share of the markets on which our living depends. In 1929, 70 percent of all the families were under the $2,500 mark which the Brookings study defined as “moderate.” The spending of that 70 percent is necessary to hold up the fabric of trade and industry on which the living of the Nation depends.
When a large part of the population cuts down spending, that fabric sags, and workers and others feel the weight of hard times. That is what happened in the early years of the depression when fear and necessity made people stop buying.
There seems no question of the willingness of American families to save when their incomes approach a comfortable level. But the evidence of this study shows that most families, and especially the families whose risks are greatest, have little to look to when a rainy day comes. Their security lies in the steadiness of their earning and the safety of what savings they are able to make for the years when they no longer can earn.
