Restoring the Value of Saving

The value of saving is finally making a comeback. After years of over consumption and accelerating debt -- and more than two years with a negative personal savings rate -- Americans are finally beginning to fret over their empty coffers and negative balance sheets. As headlines profile subprime borrowers going into default around the country, the average American’s sense of economic security has jumped from unease to panic. As policymakers scramble to develop new policies to bolster working families, echoes calling for the return of the American value of thrift are beginning to grow louder.

Any middle class American will tell you that it is increasingly difficult to afford a middle-class lifestyle on a middle-class income. Tuition at four-year institutions -- in 2005, averaging $11,441 a year -- amounts to 25% of median income; in 1990, a year of higher education cost just 16% of annual household income. Increase in the median home price has also outpaced income growth. Throughout the 1980s and 1990s the cost of a new home was 3.8 to 4.2 times greater than the median household income; today a new home is 5.1 times greater than median household earnings. The accelerating costs of higher education and homeownership -- both hallmarks of the middle-class lifestyle and trophies of the American Dream -- have made these goods largely unattainable to those who rely solely on income to advance.

Americans are quickly beginning to realize they’ll need more than just stable wages to get ahead in the new economy. And with foreclosure rates skyrocketing, and student loan and credit card debt continuing to mount, families are rightfully hesitant to take on more debt. This leaves only one option: for hard working families to afford a middle-class lifestyle -- while avoiding the paralysis of debt -- they must restore the virtue of thrift and begin to develop personal assets through saving.

Saving has already emerged on the campaigned trail as one not-so-novel way to bring low- and middle-income American’s back onto solid economic footing. Just last week, John Edwards proposed the creation of “Get Ahead Accounts” that will provide matching dollars for working families who save. It is with savings, Edwards argues, that families will achieve economic security -- by investing in assets such as higher education or homeownership.

Just off the campaign trail back on Capitol Hill, savings proposals are gaining traction in a divided Congress looking for a bipartisan way to support working families who feel increasingly marginalized. Just before the August recess, Senators Clinton (D-NY) and Smith (R-OR) introduced the New Savers Act, a comprehensive bill designed to promote new savings, especially among low- and middle-income families, and enhance existing savings vehicles. In addition, members from both chambers and both sides of the aisle have proposed reforming asset limits -- rules in public assistance programs that prevent low-income families from saving while receiving benefits. The savings agenda appears to safely occupy the ever-receding common ground in both parties’ approach to social and economic policy, making it fertile ground for innovative policies that can actually become law.

One bold initiative rooted in this shared agenda has the potential to instantly reinvigorate America’s saving culture and provide every citizen with a vehicle to invest in his or her own economic future. To date there are a number of legislative proposals, from both Democrats and Republicans, to create a Children’s Savings Account for every child in America. These accounts, which could be started with government seed money and grown through personal deposits, would provide every individual with the start up capital needed to transition into adulthood. By limiting the use of these funds to investments in higher education, homeownership, or retirement, we can ensure that every young person has the opportunity to pursue the American Dream and the capital needed to secure a middle-class lifestyle through hard work and prudent investment.

Making homeownership, higher education, and retirement security a reality for families earning the median income in the new economy will require a fundamental shift away from debt and consumption back to the inherently American value of thrift on which our middle class emerged and thrived. Policies both big and small can help increase the incentive to save and expand access to savings products, but it will take a cultural reawakening for America to remember that the trophies of a middle-class lifestyle are bought with hard work and prudent investment, not with easy credit.