A Contrarian View of Saving

The New York Times has an interesting article highlighting some different ways of looking at savings. While analysts bemoan our negative savings rate, some academics and researchers are looking at it differently.

The argument between the sides is similar to the classic debate between the hardworking ants and lazy grasshoppers of Aesop’s fable. The financial planning industry says saving, even too much, provides a safety net and peace of mind, and possibly a gift to heirs at the end.

The economists answer that people would get more out of their money by using it when they are younger. “There is risk in saving too much,” Mr. Kotlikoff said. “You could end up squandering your youth rather than your money.”

One of my complaints about a lot of financial calculators is that they don’t seem to take life into account. There are times in our lives when we spend more or we save more, it is hard to keep it consistent year after year. Additionally, there are times when we have short-term investment opportunites that can be even more beneficial than socking it away in a Roth IRA.

So, who is right? My guess is that the truth lies somehwere down the middle. Finanical companies have a vested interest in having you save more, as that is how they make their living. Also, by giving conservative advice they never have to worry about a class action lawsuit. At the same time, I am not sure there is any real problem with having a few extra bucks when you might not be working for 40 years or so. I think the key is balance.

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