Chapter Seven: Crafting Policies to Encourage Thrift in Contemporary America (Alex Roberts)

There are essential two sides to America when it comes to the economy. On one side there are banks, financial advisers, and thrifty savers (referred to as the mainstream). On the other side are payday lenders, the lottery, and spender (not savers). The question for policymakers is how can those in debt join the savers and become more thrifty? The personal saving rate is a statistic that tells what portion of personal income is put in the bank, invested, or used towards buying a home. From the post-World War II period to today, Americans have been saving less and less. This statistic, however, excludes capital gains on homes, stocks, and businesses, which is why one must look beyond the savings rate to understand American families' true financial state. When capital gains are viewed, it can be seen that as asset values have risen, Americans have cut back on saving. The opposite happens when asset values fall. In the long run, the average American family has fared well despite the difficult economic times. Both middle-class families and immigrant workers have been saving well over the past several years. The average immigrant worker saves one-third of his or her income every month. Lower-income Americans have been increasing their rate of stock investment. They have also been thrifty with their money; they go in debt for assets which are used to increase their wealth so they can overcome adversity. However, about three in five families with lower incomes do not save at all. Somewhere between 15-35% of Americans are not saving enough for retirement. The question then becomes: why do some Americans save too little? There are a myriad of reasons. Lower-income families have less money to divide between consumption and saving/investing. Lower-income families do not have the financial aid institutions that are very helpful in saving money that higher-income families have access to. Lack of motivation is another explanation; oftentimes people succumb to their situation in life and never work to rise above it or overcome challenges. They set low goals to avoid the pain of failure. If an individual has no goals, then they have no need to plan for the future by saving. Some people believe the government should offer tax subsidies to those individuals who save, thus encouraging saving. However, the author believes that the government should first create institutions and products that would help saving and investing. Next, they must become creative to make effective ways to draw people towards thrifty lifestyles. The government, basically, would help individuals start saving by encouraging them and making the process easier. Three policy recommendations that would put this strategy into action are:

1. Create an "American Investment Plan" and mandate universal automatic enrollment


2. Create a public education program to promote thrift (much like Personal Finance class!)


3. Create a "Save to Win Bond" to compete with the lotteries

People are not saving enough on their own. This is why the author believes that the government must step in and enact policies that would not only promote and encourage thrift, but also force it upon the American public.