The Patriotic Grinch Says: Save More, Spend Less

Not two weeks after September 11, 2001, when the stock market was still all over the map and plans for and unfunded war in the offing, President Bush famously told Americans to "[d]o your business around the country" and to "[g]et down to Disney World." At the time, the U.S. savings rate was lower than it had been in thirty years -- a third of what it was in the early eighties -- and it would continue to decline after the market bubble burst [pdf]. In short, profligate spending was exactly what the country didn't need.

A decade later, this is no less true: the average American has credit card debt of $6,513, college graduates are in the hole for tens of thousands of dollars; and millions of homeowners are underwater. No one's immune, including Baby Boomers, many of whom have awakened to the reality that they can't retire any time soon.

Even so, we're unlikely to change our ways. According to the OECD, the household savings rate in the U.S. is in the low single digits. We badly lag most developed nations, including Australia, Austria, Belgium, Germany and Sweden. (Government here also collects far less revenue as a percentage of GDP than any of these countries.) A possible explanation, Sheldon Garon told SmartMoney, is that "Americans are culturally pressured to spend as their obligation to keep the economy going. They’re rarely told to save to make the economy more stable."

The recent consumer confidence uptick suggests, worrisomely, that this cultural obligation will be easy to exploit. Enough, says my Demos colleague, Mijin Cha: "This holiday season, let’s all pledge to stop buying crap." (This especially makes sense given that most Americans report that they don't want many of the presents they receive during the holidays. In other words, the crap isn't even wanted.)

I've another suggestion: Perhaps, if only as a form of protest, we ought to refuse to buy anything at all. Be a grinch on Christmas morning and give your kids a lesson in depreciating assets. Explain to them the terrible irony that our government relies so heavily on the consumer as an engine of economic growth and yet refuses to spend a dime on that very same consumer.

Extol the virtues of saving. Explain that saving money not only is necessary for retirement, and as a bulwark against future health problems, but also has macro-economic benefits. Banks, you could say, frequently use consumer deposit funds to invest in loans and other projects -- e.g., financing a housing development -- to boost their own profits. Ideally, the bank uses the customer's money in ways that ultimately enrich the economy at-large.

That's not exactly pithy, and there's admittedly little glamour in a bank deposit. But it's far better than the alternative -- setting the money on fire. The kids will be grateful, eventually.