Richard Thaler on the future of saving in America

Question: Should we become a nation of savers like Japan where the savings rate has been consistently over 10 percent in the last few decades, hitting a high of 18 percent in 1981. (It is dropping now.)

Thaler: “I think the most we can hope for is that we become less a nation of debtors.  The national savings rate for the last few years has been essentially zero. In December it jumped to 2 or 3 percent. This is not Japan…I think we are going to see a period of a few years of retrenchment in consumer spending and that may prolong this recession…But that is necessary. We can’t sustain an economy where we spend $102 out of every $100 we make.”

Question: Do periods of economic crisis lead to permanent behavioral changes?

Thaler: “If you look at the data say in 1980, people who were going into retirement at that time had no mortgage debt to speak of. People would take out a mortgage and they would pay it off. And certainly in my parents generation, paying off the mortgage was one of the big goals in life. That seems to have completed vanished in the last 20 years. You see people in their sixties taking out new 30-year mortgages. So I think we do need to establish a new, or old if you will, set of norms where people do strive to pay off their mortgages before they retire so at least they have their home equity to help finance their retirement.”

Full interview on Day to Day.

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