Americans Aren't Saving Nearly Enough


By the time today's 50-year-olds reach retirement age in the mid-2030s, Social Security is projected to be bumping up against insolvency. That will mean automatic 20 percent benefit cuts for everyone. Clearly, it's never been more important for Americans to stop trusting the government with their financial planning, and yet far too many of us still do.

Studies show that around 35 percent of Americans would run into financial trouble if they missed a single paycheck or were hit with an unexpected expense of $1,000. When it comes to saving up for the big things—like retirement—the data are far worse. A 2018 survey conducted by Northwestern Mutual, a financial services firm, found that one-third of Americans have less than $5,000 in private retirement savings, and the average amount tucked away is just $84,000, far less than the nearly $1 million the average retiree will need.

All told, the American personal savings rate, a measurement of how much the average household saves after all taxes and spending, has been below 10 percent for nearly the entire 21st century (though it has rebounded from a low of 2.2 percent in July 2005 to a recent high of 7.7 percent in December 2018, according to data from the Federal Reserve).

"Most Americans really ought to be saving more," economist Tyler Cowen wrote in January after a government shutdown exposed just how quickly some Americans can end up on the rocks. "It shouldn't be controversial to point this out."

Yet it is, at least a bit, because low interest rates continue to signal to consumers that they should borrow and spend, not put money away. If we are a country of grasshoppers, it's partly because the Fed is telling us not to behave like ants.

Saving money for a rainy day is both a personal and a social obligation, and the poor state of Americans' savings accounts manifests itself on both levels. It's most obvious when someone you know is facing the hardship of being unable to pay emergency medical bills or afford a crucial car repair. Setting up a GoFundMe page might fill the gap, but it won't put someone on the path to personal solvency.

More broadly, inadequate savings leave Americans more likely to turn to the government for help, which gives leverage to politicians who will want to pilfer others' savings and retirement accounts. If more people feel like they're teetering on the edge of financial instability, then there will be more demand for expanding the taxpayer-funded safety net—even if there is ample evidence that the government can't even fulfill many of the promises it has already made.