Every morning when pouring my cereal and opening up my newspaper, or rather, my web browser, my mood is shattered by the doom and gloom of the American economic system. Just a few months ago hope and change reigned supreme. Not so much these days. It looks like housing meltdowns, credit crises, and our patriotic duty to spend willy-nilly have put a little bump on the yellow-brick road to prosperity. Let’s not drown ourselves in our bowl of generic, shredded wheat just yet though. We might actually get some of that sought after change— but don’t call it a comeback. It won’t be the type of change Presidential campaigns are won and lost on. It will be the kind of change you find under your couch cushions. Maybe it is just that the Bank of America “Keep the Change” savings marketing campaign is working, or more realistically, that the American people have been scared into saving. Because in the face of all chaos happening to the financial markets, layoffs, and pay cuts, Americans are actually saving more. In fact today, the Personal Savings Rate is the highest it has been in 14 years.
Call me old fashioned, but saving money seems like the best way to deal with stagnant credit markets and irresponsible financial institutions. I know, it is trendy, and “new school” to be pro bailout; pro spending; and pro borrowing (so that you are able to spend more), but I’m an old school kind of guy.
Here are a few simple things to consider. If the savings deposits in banks are higher, banks have more money to invest and loan out. And if banks, on average, are loaning to people with bigger savings accounts than they were previously, they must generally be in a safer position. But this must be too simple to be true. After all, both former President Bush and current President Obama would disagree with such analysis. After 9/11 Bush told the American people the best thing they could do to help their country was to go shopping! And Obama’s priority has been to get the credit markets back on track as quickly as possible! What is the underlying message from both the former and sitting Commander-in-Chief? Spend now, spend more, spend again (and again)! And we thought that Democrats and Republicans couldn’t agree on anything.
From our political leaders to our next door neighbors, we are proud to be a credit card nation. That is to say, not only are we addicted to spending, but if Americans aren’t spending, the whole world feels it. As we’ve recently found out, spending at unsustainable levels and living far beyond our means causes a few problems. And now that the credit fairy has run out of gold pixie dust—and we can’t take a 2nd mortgage on our houses or get an equity line of credit—we have to cut back on our $8 cups of coffee, our designer sunglasses, and our favorite restaurants.
Talking about savings isn’t very sexy, but it is essential to economic recovery and personal financial well being. China, a chief foreign investor in the United States, has cited the relative low savings levels of Americans coupled with our excessive spending habit as dangerous to long-term sustainability. That’s right. China is tutoring us in fiscal discipline. And it should be common knowledge by now that Americans are near the bottom of the list in personal savings levels compared to other developed nations. Bailouts and policies making it much easier to get credit look good at first glance; but it seems like what we are really talking about is giving the American people two new rights: the right to spend unabashedly, and the right to maintain an inflated, unaffordable quality of life. Not to mention the right of financial institutions to make poor decisions and still live to loan another day.
Our spend-a-lot policies are sending a clear message to our children, our adults, and our major companies: “spend as much as you want, and if you run out, don’t worry, the government has got you covered.”
Washingtonian wisdom these days seems to be that we are going to spend our way out of these dark economic times—but in actuality we are once again using credit cards. Don’t worry though, congress and the Administration won’t have to pay back these loans, our prosperous future generations will. As if economic growth and prosperity is guaranteed ad infinitum. But what do I know about all of this murky, economic mumbo jumbo? I am just a twenty-something year old kid. While I don’t know much, I am sure about one thing: my friends and I will be the people paying off this debt. So we had better save up now.
If the economic rollercoaster is causing Americans to save more, I say bring it on! Savings must become part of the plan to overhaul out-of-control government expenditures and excessive personal spending—so that we can actually protect the potential for prosperity of our next generation. We need to reopen a policy debate about effective and responsible savings policies that help ensure economic stability and opportunity for American people today and tomorrow.
And best of all, when you save for yourself, you get to keep the change.
Brian Calle is the President of the Young Executives of America (YEA), a member of Gen-Next, a Fellow at the Claremont Institute, and a Distinguished Speaker and the Milton Friedman Foundation School Choice Speakers Bureau.