Saving Money Helps The Economy - And You

By Jim Ludwick



Saving. It's not much fun, and it produces few bragging opportunities versus, say, buying. Look at my new car. Look at my rainy day fund. Notice the difference?

Americans haven't been very good savers. Why? Is it because we're a consumer society? There are ads out there that encourage us to save for house down payments, for college and for retirement. Yes, but there are millions more ads seeking our disposable dollars for other things.

There's competition for our dollar. That's good. It's capitalism at its best. However, more and more people are spending today and relying on government to bail them out tomorrow. America has one of the lowest savings rates among developed countries. And one of the lowest tax rates. See where I'm headed?

The safety nets developed out of the Depression anticipated death around age 65. Now many live to at least 80, and that number is growing. Better preventative medicine, things like seat belts and all sorts of drugs prolong our later years.

How can Americans be urged to save more and spend less? What will that do to our economy? Troubling questions? Not really. I won't take you back to school for economics class other than to remind you that when you save you can help banks, companies and even the government save money, too, by putting your dollars to work at less cost. That means more profits for businesses and their owners (read: shareholders), and it lowers the cost that the government must pay to borrow (read: lower interest rates).

When you save in individual fixed income investments like savings bonds, municipal bonds, quasi government bonds, CDs, corporate bonds and the like, you are lending them your money for a period of time, and they are paying you for that loan. When you put your money individually into ownership of a company (buy stock) or put your money into a fund managed by an investment company (a mutual fund) you are buying a package of loans or ownership that can be later sold at a profit, enabling your savings to grow. That's the idea. (Yes, during the last three years some stocks and mutual funds haven't been the best place to put all of your eggs, but that's another topic.)

Not only is saving kind of boring, but it's confusing. Many people save by buying stocks and bonds (individually, but most are using mutual funds) either through work (pension or payroll deduction) or out of their after tax income. You can buy U.S. Savings Bonds at more than 44,000 financial institutions, at work, directly out of your checking account or online direct from the government - and that's just one way to save. And that's just one item.

Confusing? You bet. When you buy that car we mentioned at the beginning you know what you've got. Your neighbors can see that shiny new hunk of gleaming metal and plastic sitting in the driveway. "Wow, wish I had one. How much did it cost?" is a common refrain. Looking at your savings statement each month or quarter from your custodian, bank or credit union doesn't do a lot for our immediate self esteem in comparison, does it?

Well, get over it. I have news for you. The government can't bail all of us out of not saving for college anymore, and certainly not retirement. Notice I didn't include housing because there are no-money-down loans out there, so government and free enterprise has helped us in that regard, at least for the time being. Nevertheless, those with poor savings habits, and that's the majority of us, are headed exactly where they planned: nowhere.

Bottom line: Plan ahead. Do the numbers. There are lots of web sites that will help if you don't want or trust a live person. Try kiplinger.com or fool.com. Saving may not be all that exciting, but it sure beats working at McDonalds when you're 75.



Jim Ludwick gives financial advice on a fee-only basis. His web site is www.main streetplanning.com.