Savings in America: Building Opportunities for All

Abstract

Savings policy in the United States is at a critical juncture. The U.S. personal saving rate has declined from 10.8 percent in 1984 to zero in 2005. The national saving rate, which includes government and business savings, is the lowest among the G-20 countries and has decreased significantly in recent decades. These low levels of saving generally suggest lower growth rates of income and standards of living in the future. This paper considers barriers in current policies that confront households trying to save more. These include the complexity of laws affecting retirement and saving plans, and the exclusion of many households from using incentives that are worth the most to those facing the highest tax rates. It also discusses the effect of asset tests in welfare and education policies and other institutional barriers that discourage saving, especially for low- and moderate-income families. Without advocating any particular savings policy or reform, this paper discusses several proposed policies to build assets for all Americans. These include new initiatives such as universal children's accounts and enhanced Individual Development Accounts (IDAs). The paper also explores improvements to existing programs such as matched subsidies for retirement savings, and an enhanced, refundable tax credit for low-income savers. Although many of these ideas have not been fully developed and are open to debate on their merits, we believe they form an important part of the discussion about how to boost savings in the United States.