Everyone understands how saving can give people a sense of security and independence. Personal saving is crucial to planning for life’s expected and unexpected events, and for building financial security and freedom. But personal savings is more than just personal – it is fuel for America’s economic engine.
When individuals and families place their savings in financial institutions, they are providing the capital needed to finance their neighbor’s home purchase, car, or new business venture, thereby creating opportunity, jobs and economic growth. And when those savers need access to financing, their neighbors’ savings help ensure that the capital is available and affordable.
Likewise, savings that are invested provide the capital needed to support innovation and growth for our nation’s businesses and much more, including public infrastructure projects funded through investments in bonds. The jobs and economic activity created can spur greater savings which support a cycle of economic growth and prosperity.
A recent study by Oxford Economics found that the downward trend in personal savings is creating a drag on the economy and that the US will become ever more reliant on foreign investment in order to sustain an optimal growth rate. The study finds that an increase of 1-5 percentage points in personal savings over the current 3.8% rate would add $3,500 to per capita GDP by 2040. “For the economy as a whole, the cumulative net present value of the additional GDP is $7 trillion, equivalent to around half of US annual GDP today.”
The Oxford study shows that a little savings goes a long way on a macroeconomic basis. The same holds true on a personal level – savings build on themselves. We understand how compounding interest on debt can cause a downward financial spiral. Unnecessary spending, too, costs more than just your “out-of-pocket” expense – it costs you in terms of “lost savings.” Savings has an exponential affect where wealth builds upon itself. Saving and investment not only helps you by sidestepping unnecessary debt and draining interest payments, it puts your money to work for you, growing itself.
Imagine what a young person could do by getting in the habit of setting aside just $5.00 a day out of her paycheck. An 18 year-old who gets in the habit will see her savings grow by 132% over the course of her working life, turning the $91,000 set aside to over $211,000. When you set aside a little money you are not just saving you are earning.
How much can you save? Find out with this calculator!
With savings comes the ability to plan the life you want. It provides the peace of mind and freedom to take control of your life. Not only that, but increasing your personal savings has broader benefits for the national economy and a stronger economy, in turn, provides you the opportunity to save more.
So get in the habit of saving and teach your children the importance of these habits early.