We’re supposed to be enjoying an economic recovery since the Great Recession of 2008-2009 – yet many economists have questioned whether the last five years have been much of a “recovery.” Judging from the mood of the American people and their personal financial habits, it hardly feels like one.



Although the economy has been on the upswing, people haven’t been saving. While the overall savings rate ticked up between 2009 and 2012, it has fallen since then. Forty-four percent of Americans are either in debt, have no savings at all, or have only enough savings to tide them over for up to three months if they lose their jobs, according to an Assets and Opportunity report last year.

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A recent Bankrate report found that nearly half of Americans are saving no more than 5 percent of their income, while one in five (or 18 percent) is saving literally nothing at all. A quarter of middle class households (those earning between $50,000 and $75,000 annually) are saving about 15 percent of their income to fund their retirement or an emergency savings account, the study also found.

Why can’t Americans, whose savings rates have fallen over the last 35 years and save far less of their incomes than most Europeans, Japanese, or Chinese, save even during a supposed recovery?

Despite headlines about relatively healthy GDP growth of about 2.2 percent and falling unemployment, the sad reality behind these positive economic statistics is that wages haven’t risen for most Americans since 2000. While headlines decry Europe’s sclerotic economy, where average wage growth has lagged behind America’s since the 1970s, averages deceive. If one subtracts the spectacular income gains of the top 1 percent in the United States, wage growth among the bottom 99 percent has been less than in France, a country plagued by and derided as a stagnant economy, according to the Organization for Economic Cooperation and Development.

At the same time that wages and personal savings have stagnated or fallen, fewer and fewer American workers are offered employer-provided pension plans that provide some economic security in retirement. That leaves Social Security, which 22 percent of married retirees and 47 percent of those who are single rely on for at least 90 percent of their income.

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Although the stock market has rebounded spectacularly during the Obama years, the typical American household has seen its net worth fall by more than a third between 2003 and 2013, to about $56,000. And about 60 percent of U.S. workers have less than $25,000 in savings, a far cry from what they will need to retire – while the 16,000 wealthiest American families together have $6 trillion squirreled away.

Not exactly a lot of American nests with nest eggs. In a true recovery, incomes, wealth, and savings for all Americans would be growing. So how can we even make a dent in the U.S. savings crisis?

Raising wages and increasing tax credits like the Earned Income Tax Credit for those who work are essential. But increasing savings is not only about better wages, although earning $20, instead of $10, per hour certainly increases the ability to save. But Americans are not a thrifty people. We also need to build incentives for people to save. Without dramatically boosting savings, not only do tens of millions of Americans face destitution or the prospect of working into old age, but taxpayers will ultimately have to pick up the tab and the lack of savings provides a diminished pool of capital for businesses to invest.

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Several ideas could make a difference. One proposal, for an automatic IRA, would serve small-business employees who would automatically save unless they chose to opt out. This could benefit more than 70 million workers who don’t have workplace-based pension plans.

Individual development accounts (IDAs) could help build low-income adults’ savings, as participants would receive up to a three-to-one government match if they saved for an approved purpose such as a down payment on a house, paying college tuition, or starting a business. A pilot program run by the nonprofit Corporation for Enterprise Development helped create 20,000 such local initiatives. Credit unions in four states have created “save to win lotteries,” in which those who save can win money.

Expanding the federal government’s Saver Credit, which provides a tax credit for moderate-income Americans’ contributions to an IRA or 401(k), also would help. While the IRS has modestly increased how much Americans can stash away in 401(k)s, that amount could be increased even more. Another idea is to create children’s savings accounts (CSA), which would be seeded by a small initial investment by government for each baby born into low- and middle-income families, with additional amounts added during childhood as long as the family also contributed to these accounts. The cost would be less than one-eightieth of what taxpayers spent on F-22 fighters, which had never flown a single combat mission until a September bombing strike in Syria. San Francisco piloted a Kindergarten to College CSA, Cuyahoga County, Ohio, approved a similar plan in 2013, and bipartisan federal legislation, the American Dream Accounts Act was introduced by Senators Chris Coons (D-DE) and Marco Rubio (R-FL) during the last Congress.

Americans—and America—cannot survive and thrive unless it can increase the savings and economic security of its people.

Andrew L. Yarrow, a historian who teaches 20th century America at American University, is a former New York Times reporter and author of a new book, Thrift: The History of an American Cultural Movement.

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