According to a study by the Federal Reserve, nearly half of Americans can't afford $400 in an emergency. The poor and middle class in the United States have been in a state of economic tension at work, and they are not well prepared for their retirement. In terms of retirement security, the United States ranks 19 for three years, behind Australia, New Zealand, Japan, South Korea, Canada and 13 European countries.
So why don't Americans save money?
In order to get a complete answer, we need to consider the following three factors:
(1) Since the phenomenon is new, its cause must be new.
(2) As the decline of savings in developed countries is global, the reason must be global.
(3) Because the poor and middle class in America are poorly prepared for retirement, the reason for not saving money must be "special".
1. When the income stops growing, they will stop saving. The peak of American savings is also the period of American income growth. It's easy to understand: if you have money, you want to save it.
From 1960 to 1973, the annual growth rate of per capita income was 3.2%. But in the next two decades, the annual growth rate was only 1.5%, which was reduced by half. At the end of 1980s, the annual income growth rate of some other developed countries also declined.
Economists Barry Bosworth, Gary Burtless and John Sabelhaus wrote in a paper of Brookings Institution 199 1 that in almost all major industrialized countries, "savings interest rate and income growth will decrease at the same time".
Due to the slowdown in income growth, middle-class families have to spend more to meet the increasing living, housing and medical expenses, and the savings situation is not satisfactory.
This first reason is not comprehensive. In fact, since the 1990s, the income of the United States has started to increase again. So why did the savings rate plummet?
2. The poor and middle class are in debt because of buying a house. The 1990s witnessed a decade of rapid income growth in the United States. But at this stage, the personal savings rate has dropped by 5 points, which is the fastest decline in the last century. The reason is that the mortgage is "in trouble".
The home ownership rate in the United States hardly changed from 1985 to 1995, but it suddenly increased in the late 1990s and reached a record high in the middle of the first decade of the 20th century. A more reasonable explanation is that many Americans gave up their savings habits in the stagflation stage of the 1970s.
Because of the increase in income, many people use credit to buy houses, cars and furniture in the suburbs. From 1998, the savings rate of 90% middle class and poor people began to decline, partly due to the huge mortgage debt. Then the bursting of the real estate bubble made millions of people suffer from foreclosure, especially those who used most of their savings to buy a house.
American policy is not conducive to saving. In the past few decades, private enterprises in the United States have withdrawn from the "fixed income system (also known as the pension fixed income plan)". Under this system, workers will know how much money they will get when they retire, while under the "defined contribution system (also called defined promotion system)", workers only know how much money they have saved every year. The 40 1(k) plan is an example of the latter.
(Note: 40 1(k) is taken from (Section 40 1978) in the domestic income law of the United States. It is a special retirement savings plan in the United States, which is popular because it can enjoy tax incentives. )
But 40 1(k) is defective. Withdraw 40 cents in advance for every dollar deposited. This is called "flexibility", but in the long run, it is not conducive to retirement deposits.
Germany, Australia, Canada, Britain and other countries with developed pension systems are not allowed to withdraw the money in advance except in extreme cases, so they also perform well in the indicators of retirement index.
Compared with other countries, Americans don't save money because it is easy to spend and borrow money in the United States.
Americans like conspicuous consumption from 1994. Before the prosperous real estate industry led to the negative savings of the middle class, the economist James M. Poterba published a survey report on the savings of young people under the age of 30 around the world:
Canada: 0
Germany: 9.8
Italy: 10.0
Japan: 17.9
United Kingdom: 5
United States: -2.2
What causes the low savings rate in the United States? Perhaps it lies in the richness and diversity of the United States, and the national character of the United States is the "culprit" of bad consumption habits.
There has always been a stereotype that ethnic minorities consume more "tangible goods" than whites, such as clothes, shoes, jewelry, watches, salons, health clubs and auto parts.
In 2008, a study on the consumption of ethnic minorities showed that even after controlling their income, ethnic minorities saved less than whites and spent more ostentatiously. But it's not just about race. White people in low-income States also consume more "tangible goods" than white people in high-income States.
It can be said that some people do this to show that they are not poor. Megan McArdle said, "If you come from areas with low average income (such as the south, areas with many ethnic minorities, rural areas, etc.). ), you may be considered poor, which will make it difficult for you to be treated completely equally to some extent.
In countries where whites are basically treated equally, other low-income ethnic minorities want to look like rich people materially. In such a diverse country, some people will be considered poor because of stereotypes, so these low-income people may prefer to buy clothes and cars and tell others that "I am not poor".
Income inequality has greatly increased the pressure to catch up with the high-income class. Marianne Bertrand, an analyst at the Booth School of Business at the University of Chicago, and Wang Maolin Morse, an analyst at the Haas School of Business at the University of California, Berkeley, found that income is closely related to the savings rate. While income inequality is increasing, the average savings rate has been declining.
They called their theory the "trickle-down effect" and concluded that "families with more rich people have greater economic pressure." They even found that there is a positive correlation between income and the number of bankruptcies of the richest families and individuals in the United States.
They found that "tangible wealth" is contagious. When people see other people's high-quality life, even if they can't afford it, they will strive for it for themselves.
Middle-class families in developed countries shift their spending from "non-rich goods" such as gasoline, public facilities and food to "rich consumer goods" such as clothing, jewelry, furniture, manicure and sports. Without these changes, these people would have saved an extra $800 by the end of 2000.
Why has the savings rate of middle-class and low-income families, which account for 90% of the total population, been negative for more than ten years?
The first two answers provide an economic explanation: the wage growth of the middle class in the United States is slow because mortgage loans have been forced to repay debts for decades.
The latter two studies provide a cultural explanation: ethnic minorities and low-income whites spend a lot to look rich.
Americans sometimes don't save money because they can't afford it. There are several children at home, and the expenses for food and clothing are basically fixed. Housing is expensive, and illness sometimes makes people bankrupt. Two thirds of the workers can't enjoy the company's retirement allowance.
In addition, education in the United States is also a big expenditure, especially in the stage of higher education, most families have to spend a lot of money. In the past few decades, the cost of public universities has increased, while the public education expenditure at the national level has decreased. Public medical care is not perfect. Except for the elderly and poor residents, others should also reserve a large sum of money for living medical care.