Over at Ezra’s place there’s a discussion of why people save so little these days. As for myself, I suspect 90% of the gap in savings between the 30-year old of today and the 30-year old of 1950 can be explained by:
a) Social Security: Although it was around in 1950 (if memory serves me right the first recipient received her first check in 1940), its effects hadn’t yet permeated the culture, and depending on it was a new phenomenon. Traditionally, if you did’t have, say, three or four years income put away in savings by the time you approached retirement age, you were really risking penury. Not that Social Security alone can give most people today a comfortable retirement, of course, but it is a huge help, especially if your house is paid off (and you’re covered by Medicare).
b) Medicare: for the same reason as “a” but maybe even more so.
c) Medicaid: for the same reason as “a” and “b” but definitely even more so.
d) Unemployment insurance: I wouldn’t want to live on it for very long, but its existence sure makes the proverbial rainy day fund seem like much less of a necessity.
e) Health insurance: it’s a lot more common than in the America of sixty years ago, even with recent slippage. And that slippage is unlikely to prompt people to save, because for most people, self-insuring is a completely unrealistic option: your only hope is to pray you don’t get sick, and hope emergency care in your area is competent.
f) Aggressive mortgage lending: there’s simply not much need to save aggressively for a down payment these days when you can buy a home for 5% down or less. If you can’t afford a home in your area with even today’s easy mortgage financing, then you probably need to move to a different area (and millions of Americans do just that).
g) Student loans and government subsidization of post-secondary education: sure, in real terms, elite schools (and even not-so-elite schools) are more expensive than ever before, but the student loan lending industry is also bigger than ever before. Parents simply aren’t really required (not if they don’t mind their progeny taking on lots of debt) to save for their kids’ education if they don’t want to or cannot afford to do so. A client of mine recently revealed that his student debt (including dental school and post-grad studies at a very prestigious Ivy League institution) totaled in the neighborhood of $500,000.
Yup, there’s a reason we don’t save any more. The major life events once upon a time we needed to save for are now taken care of by borrowing, or by the government.