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U.S. Household Saving Needs Boosting, Paper Asserts

At their current savings rate, many Americans will have tough choices to make as they age. Not only that, but a low savings rate has broader serious implications for the U.S. economy and its solvency. “Another Penny Saved: The Benefits of Higher U.S. Household Saving,” a paper by Oxford Economics, paints a sobering picture of the current savings rate and its consequences for retirement. But it also offers some suggestions regarding how to address and maybe even reverse it, and what could result from that.

The paper cites Bureau of Economic Analysis (BEA) statistics that show that U.S. household savings rates fell during the Great Recession and have not recovered, standing at just 3.8%. Worse, BEA projects that unless this is reversed, the rate will drop even farther to 3% in the 2030s.

There are serious consequences for this, the paper warns: a retirement in which Americans will have to work longer, accept a lower standard of living or become penniless. But it also bodes ill for the nation in general: lower cash reserves for businesses, even poorer prospects of a federal budget surplus, slower economic growth, less domestic investment in productive assets and increasing debt.

The paper says that filling the savings gap will not be easy for many households. And it sets a high bar — it says that a healthy range of investment for the economy as a whole would equal 20%–25% of GDP. But the rewards, it asserts, would be worth it: less dependence on foreign capital, more secure households and stronger long-term economic growth.

The paper warns that it is false economy to try to cut government expenses by pitting personal and national solvency against each other. It argues in favor of bolstering current savings vehicles, and expanding that effort to those not covered by employer plans. It advocates recognition that workplace savings plans are the primary way that working Americans accumulate assets. And it calls on policy makers to work with working households, financial service providers and employers to heighten savings and investment.

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