A personal finance blog dedicated discussing such topics as budgeting, asset allocation, 401K, IRA, cash flow, insurance, financial planning, portfolio management, and other areas in personal finance.


Tuesday, August 09, 2005

What if Everyone Saved 10% of Their Income?

This is an interesting question raised by Hazzard over on the Everybody Loves Your Money (ELYM) Blog. Here's my 26.4 cents worth:

First I have a couple of questions:

1. Is paying off credit card debt and other consumer debt considered "savings?" It would make no sense for Americans to "save" 10% of their income while still holding so much consumer debt.

2. Is investing considered "savings?" I have not researched this topic enough to know if retirement savings through IRAs and 401(k)s and other savings vehicles is considered savings. (This would be a great time for an economist to offer up some information)

That said, I would think that initially, the savings would hurt companies that produce luxury goods and other unnecessary products that we buy. Banks, on the other hand would probably see an influx of new money from all these savers. Banks, sitting on top of a mountain of cash would probably buy other smaller banks.

Mutual funds and brokerage firms would also see increased deposits. It would be interesting to see how the stock market would reach an equilibrium since lots of companies would be hurt by America's new zeal for saving.

Since I am not an economist, it would be hard for me to project out what this would mean for our economy in the long-term. I welcome anyone with an economics background to comment. Also, be sure and check out the post and the comments on the ELYM blog that I linked to.

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