John Edward, a resident of Chelmsford who earned his master’s degree at UMass Lowell and who teaches economics at Bentley University and UMass Lowell, contributes the following column.
Many Greater Lowell legislators made a big mistake in 2011. My State Representative, James Arciero, was one of them. In this column, I will offer them a chance to do something right in 2012.
People who should be saving for the future are instead gambling on their future. The state legislature can help solve that problem.
The savings rate in the United States is too low. After the Great Depression and through the mid eighties the personal savings rate was around 10 percent. In subsequent years, the rate fell sharply. During brief periods it even went negative – we were spending more than our income.
During the Great Recession, the savings rate increased, but only to 5 percent. Despite the recovery being weak, people are again saving less. The personal saving rate was only 3.5 percent in November.
Insufficient saving is bad for individuals and bad for the overall economy in the long run. Unfortunately, but not surprisingly, the problem is most severe for low-income families.
Among other reasons, the poor do not save because:
- they often have nothing left to save after spending on necessities,
- they know a modest hard-saved bank account can be wiped out with just one unexpected financial hardship,
- they typically get much lower returns or negative returns after bank fees,
- saving implies thinking about the future whereas the poor are struggling to make it through the present,
- they are encouraged to spend by both Madison Ave. and Pennsylvania Ave. read more »
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