Sunday, June 19, 2011

Encouraging personal savings

by Bethany Hansen

I have been thinking lately about what government’s role in personal finance ought to be. I ask myself questions such as: How much responsibility, if any, should government have for taking care of people once they retire? Should government encourage people to save their money? How does government help those who really do need the help?

I had a professor once argue that, essentially, most normal people, even if they tried, would not be able to save enough money for retirement. I find that argument absurd. But let’s assume it were true: then it would follow that government ought to help everyone because they apparently cannot help themselves. However, if we assume it is not true, then it would follow that people ought to help themselves. Could there be an in-between? I think so.

Authors of a Wall Street Journal article entitled “The Other Midlife Crisis” cite data from the US Census Bureau showing that the average worker’s salary plateaus during his or her 40s. That’s right—the big 4-0. That’s quite contrary to what most people plan for, which is the point of the article. Retirement plans tend to revolve around the belief that a worker’s salary will continually increase, so the authors argue that workers need to reevaluate their retirement plans based on the new data.

This is where I think government should step in: encourage people to save more and spend less. It will be better for the people both now and in the future, and it will be better for government to whom everyone turns when they need help but who will be unable to help because it too is strapped for cash.

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