Time to buy into 'impulse savings'
We've all fallen victim to impulse shopping. But impulse saving? Commentator Chris Farrell says Americans need to start rolling the dice on putting money away.
Economics editor Chris Farrell (American Public Media)
More on Straight Story, Commentaries, Saving
TEXT OF COMMENTARY
Stacey Vanek-Smith: If there's an upside to the last year credit crisis, a wave of bank failures, a massive recession, it could be that we've seen some huge changes. For now, at least, we're saving more money and some argue, it's the end of our culture of hyper-consumption.
So maybe next time you want to impress someone, instead of showing off your great new phone or great new purse, you can talk about how much money you have in your 401(k) or how many coupons you've clipped. OK, so maybe not the world's greatest pick up line but maybe not the worst!
In this week's Straight Story, Economics Editor Chris Farrell says there are ways to make saving easy.
Chris Farrell: Americans are saving like there's no tomorrow. Two years ago the personal savings rate hovered around 1 percent. Now it's jumped to more than 4 percent. It isn't just the numbers that have changed; the way we think and talk about savings is different. We not only praise thrift, we practice it.
Of course, the big question is how permanent will it be? Are we really embracing thrift or are we simply panic-stricken, fearful of losing our jobs? When the good times roll again -- and, yes, that day will come -- will we abandon our new found love affair with savings?
I say why not give a creative push to favor the "We're becoming more thrifty" side of the financial equation?
That's what Rory Sutherland, vice chairman at the ad firm Ogilvy, advocates. At a talk last month in Oxford, the ad man pointed out that we've created many opportunities for impulse buying, but that we don't make many opportunities for impulse savings. Let's change that.
What about mobile text campaigns that remind you to save rather than shop? How about developing a large red button for the home and whenever you hit it, $50 were dumped into your 401(k)?
Is this crazy? Maybe, but I like it. It isn't all that far-fetched an approach either. Here's a practical example: States promote gambling with their lotteries. I don't like it, but lotteries are popular. So, if you can't beat 'em, join'em.
We can make lottery savings funds. You play the lottery with all the excitement of potentially hitting the jackpot. But the state would then put some of the money into a savings account for you, perhaps for retirement. You own the savings account. Put it this way: Alex Roberts, a scholar with the Institute for American Values, notes that about half of the poorest Americans spend some $12 a week on the lottery. If that money were saved and invested -- say, at an average return of 3 percent -- it could add up to some $30,000 in 30 years. A 6 percent rate of return? $51,000.
It's a win-win situation. Of course, some people object to combining the vice of gambling with the virtue of thrift. It doesn't bother me. Capitalism long ago created the ultimate casino that promotes savings: It's called the stock market.
So, here's a call for more innovative ideas that promote "impulse savings." In the meantime, what are we waiting for? Let's roll the savings dice.
Comments
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From CO, 08/25/2009
In New Zealand there's a variant of your lottery savings fund idea, called Bonus Bonds. No interest is paid on deposits; money that would otherwise be paid as interest is pooled and paid out as monthly prizes up to a million (NZ) dollars.
From TX, 08/22/2009
Here's an idea for a lottery savings plan. Just replicate the UK Premium bond but with a small change. The US government or state government can issue the bond where the interest is split between the bond holder, the issuer and some lucky winners. Say the government is willing to pay 5%, but instead pays 3% to the bond holders, and the remaining 2% to one or a few lucky bond holders. A $1 billion will have $20 million annually paid to the lucky few and $30 millions in interest goes to savings.
There, a combination of lottery and savings.
08/22/2009
"saving like there's no tomorrow"? Doesn't saving imply you believe there will be a tomorrow? The logical way to save if there were no tomorrow would be to, well, spend everything right now.
From Bloomington, MN, 08/22/2009
Chris, your idea of a savings lottery is a good one except for one point.
The reason the states run the lottery is to raise revenue without raising taxes (I have a relative who calls participation in the lotteries "a tax on stupidity").
The states are already strapped for cash and will be for the next few years at best so there is no chance that they will buy into the program.
Other than that I like it.
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