>The calculation on the lump sum amount one would have after 40 years investing $750 per month is grossly wrong. At 1% interest you would not have $1.3 Million saved after forty years. Instead you would have $428,884
The point should be that if SS did not exist 90% of American workers woud not invest as much as $750/month and 80% would not invest as much as $75/month.
Harris: 27% of Americans Have No Personal Savings
Why Americans don't save
Amar C. Bakshi: U.S. household saving rates peaked in the 1980s at around 11 percent, and by 2005, they had plummeted to near zero. How did America go from a nation of savers to a nation of consumers?
Sheldon Garon: Well, in fact, before World War II we weren’t a nation of great savers. We were a nation of OK savers. Those who did save, saved a lot. But as late as 1910, most Americans didn’t have a savings account. Unlike Europeans and Japanese, they lacked access to savings institutions that would accept very small deposits—such as savings banks and postal savings banks.
But then in the two World Wars, and particularly in World War II, the federal government intervened to encourage ordinary people to save in ways the Europeans and Japanese were doing at the time.
The U.S. government undertook two innovations. First, it introduced U.S. savings bonds right before World War II, and they became very popular and very accessible during and after the war. So that was one of the ways people saved and became good savers in America.
And the other way was the Federal Deposit Insurance Corporation, introduced in 1934, which guaranteed the deposits of small savers in most American banks. So during the Great Depression and after World War II for several decades, we saved at pretty good rates - between about 7 and 11 percent, from 1946 to the 1980s.
Then in the 1980s, Americans stopped being good savers - at first slowly and then very rapidly in the 1990s, particularly as housing and consumer credit became available to Americans in amounts unlike anything seen in the rest of the First World.
First, the credit card industry was deregulated as the result of a 1978 Supreme Court decision. Now able to impose any interest rate they pleased on unpaid balances, credit card firms aggressively expanded their customer base beyond the affluent to target middle and lower income households. By the 1990s, most Americans held not one but several credit cards, and more than half of those cardholders carried unpaid balances.
Second, home equity loans—which had heretofore scarcely existed—exploded. This occurred after the 1986 tax reform made home equity loans one of the few types of credit in which interest remained tax-deductible.
From the 1990s to 2005, homeowners borrowed more and more against their equity as home prices skyrocketed. Americans essentially stopped saving. Why save when you could borrow so easily?
This reliance on easy money came to a crashing halt when housing prices collapsed in 2008.
Why the Great Recession didn't change American behavior
Amar C. Bakshi: U.S. household savings increased after the shock of ’08, but then it dipped again. If the financial crisis of ’08 didn’t get us to save more, what will?
Sheldon Garon: Yes, that’s a very good question. Initially after the 2008 financial crisis and housing meltdown, there were all sorts of media stories that said that Americans were returning to frugality or adopting a new frugality and that savings rates would go above 10 percent.
And, indeed, briefly, for a couple of years after the 2008 crisis, Americans actually increased their savings compared to where they’d been. Personal savings rates went up to about 5 to 6 percent.
But in recent months, the savings rate has trended downward, falling below 4 percent (in December, it rose a bit to 4 percent). Those are not very impressive savings rates.
It is interesting that the crisis didn’t really get Americans - ordinary Americans - to start saving again, partly because so many Americans are now trapped in debt. While more affluent Americans were able to increase their savings rate easily, those in the middle and lower income strata have made efforts to reduce debt, but they are so indebted and have so little savings that it’s been difficult for them to significantly increase saving.