The Day

Saving for the future is not the American way

- Creators Syndicate

S mart people living in harm’s way of hurricanes know to fortify their homes before the storm hits. In a similar vein, the prudent will shore up their financial position before the next recession bears down — and one surely will. We’re all in harm’s way of an economic downturn.

How prepared are Americans to weather a financial crisis? The answer is that most are not, to a shocking extent.

Some 46 percent of Americans say they could not scratch up $400 in ready cash to meet an emergency. That percentage would be hard to believe had it not come from the Federal Reserve. The U.S. personal savings rate as of July stood at 3.5 percent. That’s the lowest since April 2008, when Americans were trapped in the jaws of a mean recession. And consider this: The economy is now in its ninth year of economic growth, and wages have been inching higher.

Excused from this conversati­on are the relatively well-off — that is, those whose money cushion is such that they could survive a financial reversal for at least a year. This group includes not only the decidedly rich but those working families who’ve saved carefully and spent with discipline. Also excused are struggling workers trying to get by on stagnant low wages. (Some in this group, however, should revise their borrowing habits.)

Despite the dismal record, many conservati­ves push the fantasy of an investor nation in which ordinary people save for their future needs.

They see it as an alternativ­e to government — namely, the Social Security program in its current form.

But most Americans just aren’t cut out to be sophistica­ted investors. They do the wrong things.

A friend of mine, a highly intelligen­t and frugal woman, had amassed a decent stock portfolio. But when stock prices plunged in 2008, she panicked and sold everything. Thus, she totally missed out on the stock market rebound that would have restored her wealth and then some.

She had lots of company. Today only about half of Americans own stock at all, the lowest rate in 19 years.

Furthermor­e, 80 percent of the stock market’s value is held by only 10 percent of Americans. As one might guess, they’re the richer ones. So the good news that U.S. household net worth recently rose is tempered by the fact that stock market gains account for much of it. In other words, the bonanza was not shared evenly, if at all.

The 401(k) has become a replacemen­t for the rapidly disappeari­ng traditiona­l pension plan. It is an employer-sponsored savings plan that lets workers put pretax wages into an account. About 80 percent of working Americans toil at a company offering a 401(k)-type plan.

Sounds nice, but only 61 percent of eligible employees participat­e, and many who do don’t put enough in.

Other countries foster a culture of savings over debt. They do it via government programs and tax law. Don’t expect the current crop of leaders in Washington to copy their successes. As it is, keeping their hands off Social Security is challenge enough.

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