Don’t Show Me the Money (Make Me Save It)

On Capitol Hill lawmakers, urged on by the power financial industry, talk about giving people more access to their money.

Schemes abound: making it easier to dip into retirement accounts, zero-interest introductory credit card rates, extra travel points for every dollar spent, reverse mortgages, ATMs, you name it – all in the name of keeping the spending spigot open.

Who benefits the most from the credit gusher? The banks and lenders, of course. Savers and borrowers benefit to a certain extent, so long as they have a handle on their numbers – but that’s not always the case, in fact, perhaps rarely so.

Deep down, Mr. and Mrs. Smith on Main Street know this and they are crying out for help.

They wish there were fewer temptations to spend and they can only dream of the day when it’s more difficult for them to part with their money.

Large numbers of people – even upper-middle-class folks – admit to having a hard time accessing even a few hundred dollars in the event of an emergency.

Now researchers, to their surprise, have discovered what the Smiths have known all along: people are far more self-aware of their own foibles than they are often given credit for. A sizeable group of people say they want protection from themselves.

This fascinating study in savings contract design is titled “Self-Control and Commitment: Can Decreasing the Liquidity of a Savings Account Increase Deposits?"

The point of the research is that people are, in fact, attracted to more restrictive, less liquid accounts for that very reason: they need to be restrained, want to resist being sucked in.

If you think about it, though, the great economic engine huffs along through spending and consumption, not savings, restraint and restrictions. Fat chance throttling the credit-and-spending spigot.

Consumption comes first and savings, well, we’ll get around to it later. Just look at the new car ads that tout “savings” when in fact you are spending.

Our government is hardly an example of spending restraint. The last time Washington, D.C. ran a surplus was a generation ago.

In truth, things should be the other way around, as every advisor knows.

Save first, and then spend what you have left. Of course, if we all followed that, by the time we met our obligations in proper fashion and adequately met our debt ratios, households would have nothing left to go to Disney World with the kids.

In millions of homes around the country, with households suffering from income stagnation and budgets stretched thin, heads of households are desperate for restraint, crying out for advice.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@innfeedback.com.

© Entire contents copyright 2017 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.