Feds should bring back the savings bond program

The federal government should follow the states’ lead on retirement savings, and expand the programs to cover those in great need.

There are two kinds of savings. The first idea of savings is probably as old as the development of agriculture in human history. It is a survival tool in a world of such uncertainty and desperation that humans were rarely sure where their next meal was coming from.

There is a sense of desperation reflected in the Federal Reserve’s biennial survey of household finance, which indicated that, amidst all our prosperity, over 40 percent of U.S. households could not take an economic hit. They lack the means to absorb an unexpected, emergency $400 expense.

In today’s world, a child’s illness, a car repair, or even a plumbing emergency can easily run up an unexpected outlay of $400, either in direct expense or lost wages. And the idea that a single hit like that could cascade into an economic disaster for a family has “precarious,” desperation’s first cousin, written all over it.

The source of the problem is a lack of savings, for it is savings that help us bridge the gaps between current earnings and current expenses — just as stored and, eventually, preserved foods bridged the gaps between good harvests.

Access to credit can substitute for savings temporarily, but for those who don’t have $400 in liquid assets, credit is probably not often available, and is likely to be very expensive when it is.

The second type of savings came about with the growing prosperity of the civilized world. Ever so gradually, the prevailing concept of “work until your expiration date” was replaced by a concept of retirement where work could end without penury. The buildup of savings over a lifetime of work could provide a sufficient income to cover the missing wages and provide enough funds for the worker’s immediate family to survive.

The U.S. government got into the retirement business almost, but not quite, by accident. In the 1930s the feds stepped into the picture with the creation of Social Security, which initially was intended to keep people out of the poorhouses, dependent on charity, by providing them with a regular, subsistence payment.

Through politics and human nature, this concept gradually developed a romantic attachment to the retirement idea, with the result that today Social Security is viewed by many as part or all of their retirement income.

Beyond the unstated political purpose of buying votes, there are two basic motives for government’s desire to set up savings and pension funds. The first is a government version of paternalism toward the millions of people who are not making sound financial decisions for themselves.

There is a kind of crazy logic underlying this motive, because nobody makes worse financial decisions than our federal government. It consistently lives beyond its means, has no savings, is in debt up to its ears and the public retirement system it set up itself is now devouring its own solvency.

The second is a form of self-interest. The premise is that a growing number of people make bad financial decisions and have no savings are eventually going to become public welfare cases of one sort or another, and taxpayers will end up holding the bag. Taxpayers will not like this, and politicians’ heads will roll. If, instead, government guides the bad decision-makers into a lifetime savings program, fewer will end up that way. That will mean that the bag handed to the taxpayers is smaller — and the political price paid will be lower.

Washington state is in the vanguard of states setting up pension savings plans for the millions of workers not covered by any existing employer-based plans. Although many states have passed legislation covering plans, and others are considering one, our state and Oregon, in fact, have the only programs functioning. These state programs are aimed at those who have jobs but don’t have a regular savings plan. It encourages those who would be rejected by most existing investment plans. Washington’s plan can be started with $5.

That is the area that the federal government could be very helpful in — savings plans for those without nest eggs and without any history of a personal savings plan. The feds should revive its savings stamp and savings bond programs to involve youngsters and encourage them to develop lifetime savings habits. The K-12 schools should be involved, both in a fresh curriculum in personal finance and in explaining how savings plans work. And the U.S. Postal Service can help with attractive savings stamp booklets, perhaps along the lines of its commemorative stamp series on national parks, wildlife and American history.

We can do this and make it work. And we should.

James McCusker is a Bothell economist, educator and consultant.