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!