Tuesday, February 17, 2015

New issue brief: “Dog Bites Man: Americans Are Shortsighted About Their Finances”

The Center for Retirement Research at Boston College has released a new Issue in Brief:

“Dog Bites Man: Americans Are Shortsighted About Their Finances”

by Steven A. Sass, Anek Belbase, Thomas Cooperrider,
and Jorge D. Ramos-Mercado

The brief’s key findings are:

  • Americans need to save more on their own for retirement, but human nature suggests they will focus more on day-to-day financial needs.
  • Analysis of a recent survey confirms that a household’s level of financial satisfaction is tied more to short-term – rather than long-term – concerns.
  • Even households that are in reasonable shape in the short term do not seem to focus more on distant concerns like retirement saving.
  • And households that are more financially literate appear only modestly more attuned to long-term financial issues.
This brief is available here.

1 comment:

WilliamLarsen said...

I read an analysis of US Savings rate several decades ago. It was attempting to determine why the US Savings Rate had dropped so much since the 40's and 50's.

A few observations of the report theorized;
Families that saved passed this onto their children. The researchers noted that the US Savings rate had been slowly increasing since industrial revolution had begun.

With the advent of Social Security there was little evidence that savings was affected - due to low wages, saving rates were low.

As the economy picked up the savings rate began increasing once again. However, starting in the early 60's a decline was notice in the US saving rate. The economists identified Social Security as the cause, but at the same time they said Social Security payroll taxes should be included in the Savings rate since it was viewed as savings for retirement. This theory that SS was savings evaporated in the mid 70's when SS ran 13 continuous years of negative cash flows.

There is a good correlation between the SS, MI an DI taxes and savings rate.

It is not much of a jump to look at increased taxes as a reason the US Savings Rate has dropped. In addition if you grew up in a home that you did not see save, chances are this is an unfamiliar lesson you were not privy to.

It takes money to save money. Even a little bit each week can grow. I think over the past 40-50 years we have slowly lost the ability of families saving and this loss of passing on such an important aspect is going to be difficult to get back.

Keep in mind that the highest savings rate decades were those years when payroll taxes were lowest and there were fewest number of beneficiaries.