- Hardcover: 176 pages
- Publisher: Yale University Press (June 24, 2008)
- Language: English
- ISBN-10: 0300124511
- ISBN-13: 978-0300124514
- Product Dimensions: 6.1 x 0.6 x 9.2 inches
- Shipping Weight: 14.4 ounces (View shipping rates and policies)
- Average Customer Review: 11 customer reviews
- Amazon Best Sellers Rank: #3,983,089 in Books (See Top 100 in Books)
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Whatever Happened to Thrift?: Why Americans Don't Save and What to Do about It Hardcover – June 24, 2008
The Amazon Book Review
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From Publishers Weekly
It's a much bemoaned fact that Americans who fail to sock money away in savings accounts and investments risk severe hardship once they hit retirement age or fall on tough times. What's far less obvious is how to turn these overspenders into savers. Wilcox draws insights from economics and psychology to tackle this challenge in his slim but sensible volume. His analysis of our prodigal ways is slight—a historian or cultural critic might have handled this question with more depth and aplomb—but his policy prescriptions are comprehensive, insightful and well argued. Wilcox explores radical measures, such as replacing the income tax with a consumption tax, as well as simple and easily implemented programs such as automatic enrollment in 401(k) plans and requiring more fee disclosure from investment firms. He observes that current incentives skew toward the wealthy and highlights ways to give lower-income Americans access to savings vehicles like mutual funds. As Wilcox wisely notes, there's no magic bullet for America's savings crisis, but a patchwork of practical solutions, small and large, could significantly increase workers' long-term financial security. (June)
Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved.
“With vivid examples from everyday experience, Ronald Wilcox pulls together the best thinking from economics, finance, psychology, and policy analysis on how we can return our nation and ourselves to the path of saving.”―J. Mark Iwry, Nonresident Senior Fellow, The Brookings Institution and Research Professor, Georgetown University
"Savings is the engine that powers people’s future. Unfortunately, Americans don’t do enough of it. This book captures the essence of the problem and quickly turns to the opportunity for individuals and business leaders to take steps that can make the future brighter for all of us."―Michael D. Fraizer, CEO, Genworth Financial
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If you check the USA today, you will find Pareto's Rule is still alive and well. 20% of the population has about 80% of the income and about 90% of the financial wealth.
I have been interested in finding out why this phenomenon has held across 3 countries for over 100 years. I have searched for why 20% of the people save and invest their money versus spending it all.
Wilcox starts out his book disproving what he calls 2 cocktail party theories for why Americans don't save more.
His first cocktail party theory is that Americans don't save enough because of easy access to credit cards. He argues that most Americans handle credit cards responsibly.
His second cocktail party theory is that American's don't save enough because greedy U.S. corporations overwork Americans.......and therefore we spend recklessly with the little free time that we have. He argues that other societies work more hours per year and they save more.
Wilcox then places most of the causation for America's low savings rates on two linked factors. He contends that Americans are driven to keep up with the next door Joneses in terms of buying things versus saving. He then argues their has been a huge increase in income inequality in the US from 1980 until 2003. He cites statistics saying the income of the top 1% went from 8% to 16% of the total. The top 5% really didn't increase over this same time period (13% to 15%).
Even if you accept the statistics the top 1% has gained more income.....I have trouble believing his theory. I don't think I even know anyone in the top 1% income category. If you don't even know anyone in the top 1%, how can you be driven to spend like them?
I disagree with the premise of this book in that middle class citizens have no recourse except to go into debt and spend more to keep up with the Jones's.
Way back in 1849 when Charles Dickens wrote David Copperfield, Mr. Macawber says, with respect to money:
"Income 6 pence a week, expenditure 5 pence a week, result happiness: Income 6 pence a week, expenditure 7 pence a week, result misery."
In Stanley's Millionaire Next Door, he found that most millionaires chose to live below their means so they could save money....invest the savings......and eventually be millionaires. Many people intentionally stayed in homes in middle class neighborhoods with decent school systems.....versus neighborhoods with big houses and the expectation (and expense) of sending your kids to private school. These Millionaires were frugal on their expenses for clothes, watches, vehicles, and houses. In fact, many bought vehicles using the $ per pound ratio to get the best value (Ford F150's rank high on the $ per pound ratio). I would contend that many people are free to choose to their lifestyle.......so as Stanley says.........they can choose to own a lot of cattle......or be all hat and no cattle. The author seems to contend that 100% of the people have no choice but to participate in the arms race.
Wilcox has some theories for minor factors causing low US savings rates. These include American optimism. We don't save because we assume the future will get better and it will take care of itself.
Another minor theory is that Senior Citizens have always had the highest voting rates. We don't have to save because the Baby Boomers will vote in their own pension to take care of themselves. In reverse, some people don't want to save....because they assume the government will take it away from them to take care of the non-savers.
Another minor theory is inflation. Foreigners invest their cash in the US, lowering interest rates for savings accounts. Low interest rates plus inflation that wipes out the interest earned causes people not to save.
Another minor theory is lack of financial education. People don't understand that under compound interest, the people that save early get the biggest amount later in life
Genetics is another minor theory. Some people are born savers and some are born spenders.
Behavioral finance is another minor theory:
-mental accounting causes over-spending
-over-confidence causes excessive trading
-too many 401K choices
-avoid probability questions we don't understand
He figured out we have a 93% chance of having a positive return in stocks over any 10 year period in the last 50 years.
Wilcox's recommended fixes to America's low saving rate are:
-change from income tax to consumption tax
-let poor people put some of their Social Security into stocks
-make mutual funds tell dollar cost versus % expenses
-let small businesses easily set up 401K's
-401K's should default to life cycle funds
Wilcox's theories and fixes are remarkably similar to Frank's book Falling Behind. See my Amazon book review if you are interested. Frank's book can be summed up as follows:
-Income inequality has increased in the US the last 40 years
-Rising income inequality is a bad thing
-One reason for the rising inequality is technological changes and the George Bush tax cuts for the wealthy
-The other reason for the rising inequality is that an "arms race" is created when the middle class sees the wealthy have more toys....and therefore the middle class must spend more on bigger houses and fancier cars
-The recommended fix is to switch from a progressive income based federal tax to a consumption based tax system (where savings are not taxed) and taxes would be increased for the wealthy
-The additional tax revenue would be used to provide more needed Federal Government services
I have often wondered why our current U.S. system penalizes savers. Taxes are delayed if you save in a defined contribution retirement plan.....savings beyond these plans is almost penalized. First, the money is taxed as federal, state, and social security taxes. Once you invest it, another government tax of inflation must be paid........ plus federal, state, and income taxes on any interest or capital gains. With inflation currently running higher than interest rates on savings accounts........there is not much incentive to save.
I might be in favor of switching our tax system to a consumption based system like the author advocates, but with some additional caveats. The caveats would be a 40-year transition of switching Social Security from pay-as-you-go to an individual account in low cost index funds like the current Thrift savings plan for government employees. I would also like to see total taxation capped at 15% of gross earnings (including local, state, and federal taxes)......unless during a Congressional declared state of war. I am also concerned about the "law of unintended consequences" if we change our tax system.
Although you may not agree with the author's recommended fixes, his book does cause one to think about how our US economic system is designed. At some point of high enough income inequality......the 80% of the population who does not have the income and wealth will vote themselves a share of the income from the 20% who take all the risk and generate all of the jobs (unless you believe the 20% with the money donate enough money to control our political system).
In this age of full disclosure, it can be noted that I am the author and publisher of the book INDEX MUTUAL FUNDS: HOW TO SIMPLIFY YOUR LIFE AND BEAT THE PROS. This book is an introduction to the concept of index funds is and is sold on Amazon. I am also a contributing author to the book THE BOGLEHEADS GUIDE TO RETIREMENT PLANNING available from Amazon with an estimated release date of October 2009. I have also written 21 short stories on investing which are also available on Amazon.
If you want to become one of the 20% who have all the income and wealth, you might want to read some of the books noted below. They may help you eventually enter the top 20% group.
The Richest Man in Babylon
Bogle on Mutual Funds: New Perspectives for the Intelligent Investor
The Millionaire Next Door
The Four Pillars of Investing: Lessons for Building a Winning Portfolio
A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing, Ninth Edition
The Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get On With Your Life
The Bogleheads' Guide to Investing
It is very interesting to read books written a few years ago, like this one - before the government created the mortgage crisis, and went head-over-heals into debt over the "stimulus" and other matters.
I urge others to buy this book and then pass it only to others for them to read.
Wilcox exhibits expertize showing measurement methods of savings by National Incomes and Product Accounts (NIPA) and Flow of Funds (FOF). But after a good start the book deteriorates quickly. Data shows declining savings rate from 1975 to 2006, with rich saving a larger percentage of income than the poor. Not much of a surprise. Consumer credit is an effect rather than a cause and overwork by greedy corporations is a myth. He does point out that policy makes for cheap money and asks whether we are doing anything right.
The book deals with mutual fund fees and SEC disclosure policy, getting far removed from the topic of thrift. It's more in the nature of investment advice than anything to do with thrift. In condescending manner the author thinks that his readers might have trouble converting annual charges to a monthly reckoning. He's behind the time in store labeling which no longer incorporates a price tag. Suggestions for public policy changes amount to wishful thinking hubris advice to government.
Suggestions to encourage a reversion of the US to a thrift mentality are mostly wishful thinking, overlooking the active hostility of government monetary and fiscal policy a well as propaganda. Taxing consumption is an idea whose time will never come. A rise in interest rates will occur to combat inevitable inflation, not to encourage thrift. Wilcox doesn't recognize the monetary illusion. It's the real rate of return that motivates savings. Reinvigorating the savings bond market is pure hubris. Who does he think is listening? Investment of 401K funds in growth and government bonds was unpalatable when proposed by President Bush. Advice to government and corporate CEOs is not likely to be acted on in the foreseeable future. There is data showing better performance with low fees and high interest rates. Duh!
With similar propaganda, thrift seems easier to discourage than smoking. That might be an interesting question for this pseudo psychologist to ponder. He considers that we are not as smart as we think we are. The conclusion seems to be that we don't know what to do but we better do something.
A better and newer rendition of at least the history of thrift is found in 'THRIFT, History of an American Cultural Movement' by Andrew L. Yarrow.