There is some, but not much controversy about whether Americans are saving enough. Earlier generations of Americans, including large numbers of immigrants and many Americans raised in economic circumstances that ranged from modest to impoverished, made huge financial gains through consistent personal financial discipline.
For many, frugality was necessary for survival. From the 1600’s through the 1900’s, the way that individuals with few assets besides their human capital advanced was through sweat equity, and saving. As a result, many individuals greatly improved their families’ standard of living. They accomplished this by growing their wealth through the acquisition of financial and other capital, in a system nurtured by free enterprise.
The free market system continues to provide the most powerful engine of economic prosperity that has ever been developed, but American habits with respect to fueling that engine have changed during the 20th century. Financial analysts, economists and historians differ on why this has occurred and what it means, but there is little question that thrift and saving in the more traditional sense has been less important in the minds and habits of American consumers. Some analysts warn that too many Americans will leap into retirement and continue to assume that a government-funded [read: taxpayer -funded] safety net will still appear.
What is clear is that for some time Boomer-generation Americans have embraced more debt and household consumption, and reduced saving as a percentage of disposable income—the saving rate—in comparison to previous generations. Measured in the traditional way, household saving is negative; we are liquidating assets to maintain a standard of living. Life-cycle patterns of saving and consumption can explain part, but not all of this behavior.
An alternative and controversial view of saving offered by one Federal Reserve Bank president considers that American households are now counting capital gains on assets as income. By this calculation, the long-term saving rate for U.S. households is somewhat higher than otherwise, but probably still too low.
Are Americans finding it more difficult to stay afloat or get ahead than ever before? Is it necessary, in other words, to accept the prospect of higher debt in order to maintain an average lifestyle? Maybe. Or, is the process of accruing wealth viewed differently than it was by past generations, meaning we rely on amassing and then liquidating assets like stocks and home equity, in order to provide retirement or long-term care income? Perhaps. But there are far more government/taxpayer funded safety nets out there than there were for earlier generations, and people choose differently with a guarantee in hand than they do without one. Nonetheless, the prospects for the just-begun retirement of the Baby Boom generation are different than they were for their parents, and will affect women more dramatically than men.
Evidence from many sources suggests that frugality pays in the long run. Sam Walton’s Wal-Mart business is one example of how hard work, thrift, and entrepreneurial effort can combine to pay off big. But suppose that not everyone has that kind of talent; there has to be a long-term wealth-creation route that works for the average person. There is. It’s still called saving, however achieved.
And what about those who aren’t even on the economic ladder, people who are homeless, jobless, or so low-skilled they are only employable at minimum wage jobs? Aside from those whose economic plight, poverty, or lack of saving for the future is the result of mental illness, the work ethic still ‘works,’ as this unusual contemporary story illustrates.
The stories of people like Sam Walton, Oseola McCarty and Adam Shepard demonstrate that wealth, and even great wealth, can grow under some of the most unlikely imaginable circumstances. By contrast, billions spent by government on all sorts of income-maintenance programs have largely failed to generate even a modicum of economic independence, to say nothing of real wealth, among the recipients of these program dollars (administrators do not count here).
Wealth accumulation, the best examples reveal, is less an event governed by random, unpredictable circumstances than it is by our personal choices. Evidence suggests that if we want both retirement wealth and heritable wealth for our kids, we can generally achieve that, but almost certainly need to target personal spending and saving habits to make it happen.