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Loans > Home Equity
Why do we discourage saving?
JOHN CUNNIFF, AP Business Analyst. Associated Press
NEW YORK (AP) - There is irony of a monumental sort in government proposing to help Americans save for their retirement. If only government would let them, Americans might do it themselves.
This has been pointed out so many times it is almost impossible to count the number. And by many and varied sources - concerned individuals, academics, institutions and even by the government's own studies.
Allow people to save. Provide incentives to do so. Let people protect their savings from taxes. Discourage wasteful spending. Cut government deficits and lower its interest expenses and other costs.
Then, perhaps, America's households might catch on to the idea that, even with a small amount of money, an average rate of return and a period of time for the economy to do its work, they could have real wealth.
Steve Moore of the Cato Institute and Tom Kelly of the Savers and Investors Foundation, provide a simple illustration of how this mixture can produce stunning results that every household can appreciate.
Moore puts it simply: If your grandparents had scraped together $100 in 1926 and the money was allowed to grow at the stock market's average rate of return, you would now have access to a fund worth $266,139.
Or consider this scenario: If your parents placed $1,000 in a mutual fund in 1950, they would now have $217,630, based again on the average long-term rate of return in stocks.
Fortunes have been built by low-wage earners saving regularly during their work years. You hear about them once or twice a year, and inevitably the stories are discussed in tones of amazement.
Why amazement? The growth of the American economy is capable of doing amazing things routinely. What's amazing is how casually and almost totally the reality is all but ignored by government, parents and kids.
Savings receive only token recognition from Washington, mainly in the form of Individual Retirement Accounts, 401(k)s and the like, but the amounts in any such plans are rigidly limited. Otherwise, they are taxed.
And to a great extent, savings receive only token recognition from families. Why save, they ask, if government is going to penalize us for doing so? Let us live for the moment; let us spend and enjoy instead.
That habit is written all over the statistics and the American way of life. Late last year the savings rate fell below zero, meaning Americans were spending all their take-home pay and borrowing to spend more.
What do you expect? Economists tell consumers that their spending keeps the economy afloat. Retailers provide almost irresistible lures, such as no payments for six months. Lenders shovel money at borrowers.
Much of the borrowed money comes right out of home equity, but why worry when that equity is building so fast? Besides, owners rationalize, they need tax deductions and equity loan interest may be deductible.
Spending has many sponsors - articulate sponsors trained in the arts of persuasion. Saving has few but dedicated sponsors; their funds are limited and their message is drowned by the roar of spending.
Americans once had a habit of thrift that was thought to be indelibly written on their character. Maybe it is, but it has been layered over by a message that says it pays to spend and it costs to save.
The terrible irony now is that the federal government, supposedly exasperated by the inability of Americans to save, proposes that it do it for them.
The federal government - with the most inept savings record of all!
End Adv AMs Friday, Jan. 22
Reproduced with permission of the copyright owner. Further reproduction or distribution is prohibited without permission.
Text Word Count 592
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