Save Yourself

THE GREAT RECESSION may have been a financial wakeup call for American families. But many have since drifted back to sleep.

The official savings rate averaged 10.6% in the 1950s, 11.1% in the 1960s and 11.8% in the 1970s. From there, it started to slide, averaging 9.3% in the 1980s, 6.7% in the 1990s and just 4.3% in the 2000s. Panicked by the Great Recession, many Americans made a fleeting return to frugality: During the first five calendar years of the current decade, the annual savings rate averaged 5.8%.

But even that hint of hope is fading fast. After hitting a two-decade high of 7.6% in 2012, the savings rate subsided to just 4.8% in both 2013 and 2014, and 2015 is running at a similar pace. Moreover, the official savings rate measures savings as a percentage of after-tax income, while experts typically couch their recommendations in terms of pretax income. The upshot: Most Americans are saving far less than the 10% to 12% of pretax income that’s often recommended.

All this is profoundly frustrating. Many Americans seem to have forgotten the recent financial crisis and appear unperturbed by the prospect of a penniless retirement. Congress has offered a slew of tax incentives to encourage saving and investing, and yet many folks show no interest. Some have suggested that our low savings rate reflects America’s income inequality, with many failing to save because they simply can’t afford to. Others have pinned the blame on the instincts we inherited from our hunter-gatherer ancestors, who were hardwired to consume whenever they could.

Whatever the cause of today’s modest savings rate, this is one time you don’t want to side with the majority. Your neighbors may be headed for a financially strapped retirement. You should strive mightily to avoid it. Saving diligently will never be considered clever or sophisticated. But it’s the one sure path to greater wealth.