Saving Money: Rich People Do It

Saez/Zucman

As you can see, thanks to a century of making more, saving more, and passing along the inheritance, the picture of wealth inequality in America today makes old-fashioned income inequality look like a socialist's dreamscape. (I elongated this graph until I could see a teensy fleck of red for the bottom 90 percent, a trick some of you might consider gratuitous, but there's nothing here a Piketty reader, or Piketty-summary reader, would find surprising).

Wealth in 2012

Saez/Zucman

It didn't have to be this way. Even with stagnating incomes, the rest could have done a better job building and keeping wealth. If the bottom 90 percent had continued to save 3 percent of its income over the 1986-2012 period, its share of US wealth would be a third higher than it is today. Update: It must be said that, over this same period, interest rates fell dramatically, depressing the returns of ordinary savings accounts.

How do we get poorer Americans to save more money? A good solution should attack both causes of the wealth gap—income and savings.

The most obvious solution is more income—for example, by raising the minimum wages or fattening the Earned Income Tax Credit. Indeed, the typical family isn't making any more than it was in the mid-1990s. But middle-class saving plummeted even during the 1990s, when real wages were growing. Perhaps many lower- and middle-class families were lured into the housing boom, when expanded consumer credit and subprime mortgages persuaded households to shovel their savings into some new, exurban Sun Belt home. But perhaps, even outside the housing market, Americans struggle with saving because financial institutions for the lowest-income Americans make it even harder for them to build wealth.

Low-income employers often don't use electronic payments for hourly, temporary, seasonal, or part-time workers, who are all likely to be low-paid. Even something as simple as direct deposit can change the way we think about saving, since somebody with her paycheck directly deposited into a savings account has to take active measures to spend her money. Credit card companies help their customers automatically pay off their cards, utilities, and other fees. But for somebody without a credit card or automatic billing, it's much easier to miss payments. For the unbanked, the hours of effort trying to turn one's salary into cash and payments can amount to another part-time job.

Saez and Zucman have another proposal to nudge behavior toward saving: a new automatic retirement plan that skims 3 percent of annual earnings up to $100,000. The money would go into a savings account invested in a broad fund to keep its growth near the global return on capital. Individuals could only take money out of the account early for special reasons, like buying a house or going to school.

It's a clever idea. Despite the deep economic, psychological, and institutional pressures of low and stagnant wages, being wealthy starts with not spending money.