How much money did you save last year? I’m not talking about the advertiser’s definition of “saving,” where you spend $75 you normally wouldn’t have spent on something that lists at $100. When you do that, you’re still spending, not saving. No, I’m talking about deferring consumption by not spending what’s in your pocket or your checking account.
According to recent official data, Americans are saving 5.8% of their incomes right now. This figure is much lower from what was the norm in, for example, the 1950s, when the savings rate exceeded 10%. Even so, the new numbers may be overstating true savings, because whenever someone defaults on a debt and the bank writes it down, the written-off loan is counted as “savings.”
People are getting national media exposure these days for telling people to do things like blow their tax refunds on vacations. I can see this as being good advice if the family in question already has an emergency fund and a regular savings plan, but in an era when families with those things in place are few and far between, this kind of counsel is just irresponsible.
A couple of days ago I read this thought-provoking article about Americans and saving by Doug French, president of the Ludwig von Mises Institute. French explains how the actions of the Federal Reserve systematically discourage people from saving money and make them more open to “live for today” advice. When the Fed gives us miniscule interest rates in our savings accounts and price inflation at the grocery store and the gas pump, spending every dime we earn starts to look like a rational idea. In economist-speak, the Fed is “raising our time preference.”
The problem is that civilization depends on people’s maintaining a relatively low time preference. Our central bank is having a morally deleterious effect on us. Stop the insanity!
The Western Tradition 
I am actually one of the savers who actually lives in the present, not the future. How do I save? To accomplish this I firstly got myself out from under the crooks at Chase Bank and into Beacon Federal Credit union which offers 4% interest on their checking accounts(up to 20,000 and then it drops to 3%). I do have a credit card (Discover Card) which I use to pay some expenses and I pay it off every month, so pay no interest on that and get a 1% kickback. Other than my mortgage, I live in here and now — and my balance grows. So, when an emergency comes along, I have a slush fund, to get myself out of it. I don’t have to whip out the credit card, and start living in the future again and paying off the debt along with the abusive interest and can bring the fund back up without paying ANY interest. It is really a no-brainer.
Very interesting article. There is certainly very little incentive to save in the current economic climate (at least in traditional bank savings vehicles). Bank rates are very low (most around 1%) while the official inflation figures are around 3%. Of course we all know true inflation rates are much higher. Shadow stats has estimated them between about 6% and 9.5%. So even in the “best” case – if you earn the 4% that Worldtake gets on his account your real rate of return is likely between -2% and -5%. Given those numbers it’s not hard to see why people are spending most of their “extra” cash.
Then what should someone who wants to save do? We are putting money into a retirement account and slowly building an emergency fund in a savings account, but it seems like this article is saying that even though it’s the “right” thing to do, it will do us no good anyway, because it will be worth next to nothing in the future.
People have proposed various ways to beat the Fed on this, most of them based on the conviction that Fed policy will lead to higher commodity prices.
You could put your savings into tangible goods you know you will need in the future but are likely to rise in price: canned goods, articles of clothing, toilet paper, etc. That way you lock in today’s relatively low prices and protect yourself somewhat from the inflation. If food prices go up 10% in the next year, but a year from now you are eating out of cans you bought today, that’s like making a 10% return on your money. This strategy assumes you have somewhere to store the stuff.
You could put some of your savings into gold or silver coins which could hold their value better than dollars. The down side is you lose some liquidity, and the precious metals prices can swing wildly in the short term.
You can buy foreign currencies of countries that have better monetary policy than we do and are less likely to depreciate. Everbank has foreign currency CDs, but you need $10,000 minimum to start.
You can use savings to purchase training in a skill that increases your income. That protects you from inflation.
Other ideas are out there. You definitely have to think outside the box, though.
One comment on the Everbank Foreign Currencies. You are correct about the 10k minimum for a CD, but if you just do a deposit account (like a checking account denominated in a foreign currency), then the minimum drops to 2.5k.
https://www.everbank.com/personal/foreign-currencies.aspx
Woohoo! New Zealand dollar, here I come!
I saw the below Speech recently and thought it described Time Preference decently well. The animation makes it enjoyable to watch and listen to.