I asked Gemini, Googles AI tool this question and here is the answer. Do you agree? I don’t, it’s all excuses and lack of responsibility.
How is it that citizens in other countries have higher savings rates despite much higher taxes? Even better, how was it the US savings rate skyrocketed during the pandemic? It was because there was less opportunity for discretionary spending, but after COVID eased Americans went back to their spending and low saving rates.
Economic factors:
- Rising living costs: Inflation, particularly in essential areas like housing, food, and energy, has eroded disposable income, leaving less wiggle room for savings. To some extent, but there is still plenty of discretionary non-essential spending.
- Stagnant wages: While the job market is strong, wage growth hasn’t kept pace with inflation, further squeezing household budgets. Not accurate.
- High debt: Student loan debt, credit card debt, and other forms of borrowing can significantly impact savings potential. Saving comes first.
- Declining trust in social safety nets: Concerns about the future of Social Security and other programs might discourage some from saving for retirement. Makes no sense.
Behavioral factors:
- Short-term thinking and present bias: Many people prioritize immediate needs and desires over long-term goals like saving for retirement. ✔️✔️
- Lack of financial literacy: Many Americans lack the knowledge and skills to effectively manage their finances, including budgeting and saving. ✔️✔️
- Easy access to credit: The availability of credit cards and other forms of debt can create a temptation to spend beyond their means. ✔️✔️
Structural factors:
- Inequality: Wealth is concentrated in a small segment of the population, leaving many with limited resources to save. Great wealth does not take from others.
- Affordable housing shortage: High housing costs make it difficult for many to save for a down payment or build equity. More difficult to buy, but not to save.
- Limited access to retirement plans: Not all workers have access to employer-sponsored retirement plans, which can be a major source of savings. No excuse, there are many other options .
QUINNSCOMMENTARY 
Why don’t WHICH Americans save?
Upper limit for income quintiles in U.S.(2021)
First… $28,000
Second… $55,000
Third… $90,000
Fourth… $150,000
Fifth… …
Probably in the first and second quintile, people don’t save because they can’t. They are also in the “47 percent” who don’t pay taxes, either.
The “save at least 15 percent” rule probably only reasonably applies to those in the three highest quintiles, so that throws the “average” savings off.
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In that “bottom 90 %” line, what would happen if half were saving fifteen percent, and the other half saving nothing?
I couldn’t find any data on other countries savings by income quintiles.
The average saving figure doesn’t appear to be very useful.
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My experience is failure to save is often the result of:
– Failure to prompt saving, develop a savings habit, and/or
– Inadequate or suboptimal liquidity options.
Economic factors:
Rising living costs: 70+% of Americans live paycheck to paycheck. However, of that group, among those who have access to an employer-sponsored plan, 85+% contribute.
Stagnant wages: Even where wages keep pace with inflation, there is less available due to income and employment taxes.
High debt: Need to distinguish between debt incurred as an investment (education, housing, etc.) and expense/spending beyond means.
Declining trust in social safety nets: Social Security/Medicare employment taxes may crowd out other savings.
Behavioral factors:
Short-term thinking and present bias: Current demands not more important, just more urgent.
Lack of financial literacy: Those working for wages likely have an appreciation for the value (or lack thereof) of every dollar.
Easy access to credit: Agree.
Structural factors:
Inequality: https://www.wsj.com/articles/incredible-shrinking-income-inequality-11616517284
https://www.wsj.com/articles/the-truth-about-income-inequality-11572813786?mod=article_inline
Affordable housing shortage: Liquidity, utility of savings, is an issue.
Limited access to retirement plans: All wage earners had access to IRA last 42 years.
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According to the Centre for Economic Policy Research, the U.S. has notably more inequality both before and after taxes and transfers.
https://cepr.org/sites/default/files/styles/flexible_wysiwyg/public/image/FromMay2014/causafig1.png?itok=X6BOHgHC
Hard to compare data and methods, perhaps, because CEPR is considered left-leaning (to about the same extent WSJ is considered right leaning .)
Who you gonna trust?
WTH happened in 1980?
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And the wealth inequality is even worse than income inequality. That tiny black line at the bottom. That’s half of us.
Again, remarkably worse since the 80s. WTH?
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And what does wealth inequality mean to anyone in terms of denying them anything? Great wealth is in the form of various investments and the accumulation of tgat wealth typically in the creation of something beneficial to everyone and then through the magic of the stock market.
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I’ve heard this from you, and from others, obviously, now you’re gonna make me look. I agree it’s not a zero sum game, but the proverbial pie is not infinite either.
The (free) market is a very efficient way to allocate resources, but the market is far from free.
Monopoly laws, for one thing, keep one company or individual from excess profits. According to Smith, extreme profits should be self limiting. Also according to Smith, wages even at the lowest, unskilled level, should be enough to meet the needs “at a middle class level”*.
Yes, “excess profits” do occur at the expense of the poor. Not just at the billionaire level. From what I have seen, salaries at the “professional” or executive level in the U.S. are higher than can be explained by market forces
*Otherwise you die. Or close to it.
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Why is the pie not infinite?
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Interesting question. Still cogitating and web surfing. Off hand, I would say overproduction and waste of resources. And… Jerry Brown.
“The conventional viewpoint says we need a jobs program and we need to cut welfare. Just the opposite! We need more welfare and fewer jobs.”
In the Navy we called it look busy. Railroads called it feather bedding and governments call it make-work programs. Doing work that does not need to be done, or manufacturing products for which there is no demand, then selling at a loss.
Why not pay someone to stay home instead of wasting transportation and other resources to do a job that doesn’t need to be done? No market demand?
I’m searching for an article or two who say it better than I.
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I think you answered your question in the second paragraph. There was less opportunity for spending during the Covid shutdowns. Savings rate went up in aggregate. This society is based on consumerism and only when there is a glitch in the process like the shutdown does it demonstrate how that affects savings rate.
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Nailed it.
Well done.
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we encourage debt while Europeans do not–mortgage deductions–college loans which can be reduced dramatically with numerous schemes–5-year car loans–costs overseas are quite expensive for consumer items like gasoline and everyday goods (VAT tax)–people have different lifestyles.
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