Author Topic: How will lack of American savings rates impact the future of the country?  (Read 3282 times)

RusticBohemian

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I realize that the spending rate of the American public is considered crazy here, and I agree.

But what continues to shock me is how ridiculously bad average, educated Americans are at saving and investing money, for retirement or other purposes. They're almost comically bad at it. They're so bad that I would believe coverage of the fact was part of some sort of a Onion article if it wasn't repeated so often.

According to this newly published NYTs article roughly of Americans have zero dollars invested in the stock market though traditional tax-advantaged retirement accounts, taxable stock ownership, trust funds, pension plans, or college savings programs. Of the remainder, most have very tiny amounts invested, so much so that, "For 9 out of 10 households, even a shift in value of 10 percent — enough to qualify as a “market correction” — would “at most, have a 1 or 2 percent impact on their wealth holdings,”

On top of this, 57 percent have less than $1,000 in their savings accounts. source

It makes me wonder what this will do to the US economy in the long run when these people have no choice but to work until they can't and then live in destitution off social security.

Some possibilities:

1) Will universal basic income have to be instituted to support them?

2) It will certainly mean that no politician will ever be able to destroy social security without putting in place a more luxurious replacement.

3) How will a nation where most of the economy is driven by consumerism be affected when 75%+ of the population become destitute?

4) How can they possibly be so bad at this? I've never earned more than 35k in a year, and currently make dramatically less than this, and yet I've managed to sock away more money than the huge amounts of the population that make more than I do. It's so strange.










WhiteTrashCash

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Re: How will lack of American savings rates impact the future of the country?
« Reply #1 on: February 08, 2018, 04:12:09 PM »
Only 17 states require students to learn about personal finance and the states that do require it teach it abysmally badly. The personal finance classes are usually designed by banks who do not want the average person to know what a ripoff most loans are. They want people spending every penny they make and financing things they don't need and can't afford. It is really, really difficult to get the truth about personal finance out to the public because there are massive industries that profit from keeping Americans ignorant about their money.

https://www.cnbc.com/2018/02/08/financial-education-stalls-threatening-kids-future-economic-health.html

Slow2FIRE

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Re: How will lack of American savings rates impact the future of the country?
« Reply #2 on: February 08, 2018, 05:04:24 PM »
What happens to those numbers for savings, investments, etc when you only look at people over 50?

nwhiker

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Re: How will lack of American savings rates impact the future of the country?
« Reply #3 on: February 08, 2018, 05:12:51 PM »
So a lot of this is going against my personal political preferences and believe that the federal government doesn't have any business in the welfare business.

On the basic income issue would be fine if it replaced other entitlement programs. So everyone gets a paycheck but no food stamps, section 8 housing are nothing else. The problem is figuring out an figure that the person could live on but could fit within the budget.

For more savings in Social Security I believe the current system should be scrapped and privatized. People don't understand that the money they are paying in now is going out the door today for current beneficiaries. A system like Chile would be nice. Your Social Security Payments would go into a fund (such as Vanguard) that has been approved. There could be several options so that the person can select their level of risk. This allows the person to gain the benefits of the market even if they don't participate in employer retirement plans.

I personally think that every student should have to take a finance class as part of their education. Rather than one class, I think it should go over each of the high schooll years and include a simulation that lets student have a play income and the options to buy things. It would be an interest senior project to have the teacher sit down with students and see their trajectory.

Frankly I am not sure how much any of this help without a sea change in the mindset of consumers. I am capitalist so I am fine with advertisements and businesses making money, but why do people think they need so much luxury? I think it is because they are not sure what they value anymore, so they look outward to popular culture. I thunk this needs to be communicated at an esarly age. My son has started to realize that some of his friend's houses are newer than ours. I know for a fact that a few of them make significantly less than us. I just point out our house has.plenty of room and because it is older we have a lot of money to travel (What our family values). I also talk fairly openly about money and my plan to retire early.

Telecaster

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Re: How will lack of American savings rates impact the future of the country?
« Reply #4 on: February 08, 2018, 05:44:10 PM »
For more savings in Social Security I believe the current system should be scrapped and privatized. People don't understand that the money they are paying in now is going out the door today for current beneficiaries. A system like Chile would be nice. Your Social Security Payments would go into a fund (such as Vanguard) that has been approved. There could be several options so that the person can select their level of risk. This allows the person to gain the benefits of the market even if they don't participate in employer retirement plans.

Unlike our Social Security system, The Chilean Social Security system was supposed to be actual pension that was supposed to replace 70% of a worker's income in retirement.   The problem is that in recent decades, it hasn't been able to provide anywhere near that number and lately has been providing less than 40% of promised benefits.  This has caused political turmoil in Chile as workers who have paid into the system most or all of their working careers are now finding they are eligible for only a small fraction of what they thought they were going to get. 

Our Social Security system on the other hand, is designed to be a supplement your existing pension or savings, designed to replace about 40% (coincidentally) of your working income.  SS is backed by as good a guarantee as you are going to get, and is inflation adjusted. 

A key difference is that everyone realizes the USA Social Security system will be pretty bare bones in retirement, and you have to do something else (pension, 401(k), IRA, etc.) to supplement it.  People might not do it, but they at least know they should do it.  In Chile, workers thought they were going to get a decent pension in retirement, and aren't going to get that now.   I think that's the harder pill to swallow. 


nwhiker

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Re: How will lack of American savings rates impact the future of the country?
« Reply #5 on: February 08, 2018, 05:58:19 PM »
For more savings in Social Security I believe the current system should be scrapped and privatized. People don't understand that the money they are paying in now is going out the door today for current beneficiaries. A system like Chile would be nice. Your Social Security Payments would go into a fund (such as Vanguard) that has been approved. There could be several options so that the person can select their level of risk. This allows the person to gain the benefits of the market even if they don't participate in employer retirement plans.

Unlike our Social Security system, The Chilean Social Security system was supposed to be actual pension that was supposed to replace 70% of a worker's income in retirement.   The problem is that in recent decades, it hasn't been able to provide anywhere near that number and lately has been providing less than 40% of promised benefits.  This has caused political turmoil in Chile as workers who have paid into the system most or all of their working careers are now finding they are eligible for only a small fraction of what they thought they were going to get. 

Our Social Security system on the other hand, is designed to be a supplement your existing pension or savings, designed to replace about 40% (coincidentally) of your working income.  SS is backed by as good a guarantee as you are going to get, and is inflation adjusted. 

A key difference is that everyone realizes the USA Social Security system will be pretty bare bones in retirement, and you have to do something else (pension, 401(k), IRA, etc.) to supplement it.  People might not do it, but they at least know they should do it.  In Chile, workers thought they were going to get a decent pension in retirement, and aren't going to get that now.   I think that's the harder pill to swallow.

That is a good point but I still believe that a private system is better. My biggest gripe is that a 22 year old kid just out of college is paying a tax, that is then disbursed to someone that had over 40 years to accumulate wealth. I think think the tax is set about right, maybe it is a little low. The system works only if there is enough current workers to support those collecting benefits. So if we continue to see a decrease in child births (seen in pretty much every industrialized nation), wage stagnation, or significant life expectancy increases the program will become underfunded. Then you are going to have to deal with either increasing the tax, means testing for benefits, or overall reduction on benefits.

aceyou

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Re: How will lack of American savings rates impact the future of the country?
« Reply #6 on: February 08, 2018, 07:15:31 PM »
For more savings in Social Security I believe the current system should be scrapped and privatized. People don't understand that the money they are paying in now is going out the door today for current beneficiaries. A system like Chile would be nice. Your Social Security Payments would go into a fund (such as Vanguard) that has been approved. There could be several options so that the person can select their level of risk. This allows the person to gain the benefits of the market even if they don't participate in employer retirement plans.

Unlike our Social Security system, The Chilean Social Security system was supposed to be actual pension that was supposed to replace 70% of a worker's income in retirement.   The problem is that in recent decades, it hasn't been able to provide anywhere near that number and lately has been providing less than 40% of promised benefits.  This has caused political turmoil in Chile as workers who have paid into the system most or all of their working careers are now finding they are eligible for only a small fraction of what they thought they were going to get. 

Our Social Security system on the other hand, is designed to be a supplement your existing pension or savings, designed to replace about 40% (coincidentally) of your working income.  SS is backed by as good a guarantee as you are going to get, and is inflation adjusted. 

A key difference is that everyone realizes the USA Social Security system will be pretty bare bones in retirement, and you have to do something else (pension, 401(k), IRA, etc.) to supplement it.  People might not do it, but they at least know they should do it.  In Chile, workers thought they were going to get a decent pension in retirement, and aren't going to get that now.   I think that's the harder pill to swallow.

That is a good point but I still believe that a private system is better. My biggest gripe is that a 22 year old kid just out of college is paying a tax, that is then disbursed to someone that had over 40 years to accumulate wealth. I think think the tax is set about right, maybe it is a little low. The system works only if there is enough current workers to support those collecting benefits. So if we continue to see a decrease in child births (seen in pretty much every industrialized nation), wage stagnation, or significant life expectancy increases the program will become underfunded. Then you are going to have to deal with either increasing the tax, means testing for benefits, or overall reduction on benefits.

I agree with you with your example about a 22 year old kid...if that 22 kid is like the people on these forums.  But the problem I see with that is
a) that's only like 1% of americans, and
b) those people are going to be rich in no time even under our current system, so we don't really need extra help. 

Social security exists so there aren't a non-trivial amount of old people starving and homeless. Not saying you are wrong mathematically, but just that I have a different perspective.  Government assistance programs in general aren't designed for the people that you couldn't screw up if you tried to, they are made to create a solid floor.  I'm glad that floor exists. 

aceyou

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Re: How will lack of American savings rates impact the future of the country?
« Reply #7 on: February 08, 2018, 07:19:45 PM »
I don't think it'll have that large of an effect, because I think it's already kind of baked into our current projections.  We've been a country/world that doesn't save for a very long time.  For most of American/human history, everyone pretty much worked till about the day they die.  Just talking about savings rates over like 20% is a luxury that virtually no one could even consider until relatively recently. 

We are a rare and fortunate group.

Lan Mandragoran

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Re: How will lack of American savings rates impact the future of the country?
« Reply #8 on: February 08, 2018, 08:46:10 PM »
So a lot of this is going against my personal political preferences and believe that the federal government doesn't have any business in the welfare business.

On the basic income issue would be fine if it replaced other entitlement programs. So everyone gets a paycheck but no food stamps, section 8 housing are nothing else. The problem is figuring out an figure that the person could live on but could fit within the budget.

For more savings in Social Security I believe the current system should be scrapped and privatized. People don't understand that the money they are paying in now is going out the door today for current beneficiaries. A system like Chile would be nice. Your Social Security Payments would go into a fund (such as Vanguard) that has been approved. There could be several options so that the person can select their level of risk. This allows the person to gain the benefits of the market even if they don't participate in employer retirement plans.

I personally think that every student should have to take a finance class as part of their education. Rather than one class, I think it should go over each of the high schooll years and include a simulation that lets student have a play income and the options to buy things. It would be an interest senior project to have the teacher sit down with students and see their trajectory.

Frankly I am not sure how much any of this help without a sea change in the mindset of consumers. I am capitalist so I am fine with advertisements and businesses making money, but why do people think they need so much luxury? I think it is because they are not sure what they value anymore, so they look outward to popular culture. I thunk this needs to be communicated at an esarly age. My son has started to realize that some of his friend's houses are newer than ours. I know for a fact that a few of them make significantly less than us. I just point out our house has.plenty of room and because it is older we have a lot of money to travel (What our family values). I also talk fairly openly about money and my plan to retire early.

Ron ... Swanson? Is that you? I didn’t know you frequented these fair lands ^^!

powskier

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Re: How will lack of American savings rates impact the future of the country?
« Reply #9 on: February 09, 2018, 12:03:09 AM »
Universal basic income will likely happen because automation is going to keep on swallowing jobs, and the future unemployed masses will still be needed as consumers. It won't change savings rates though.

 

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