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Younger and Smarter Savers Lead the Way
If there is a silver lining in the cloud of economic sluggishness, it is that some younger adults are beginning to “get” the fact that their financial health is their own responsibility. And taking personal responsibility is an essential behavioral characteristic of a nation seeking to accelerate its economic growth. The good news was on the front page of The Wall Street Journal under the headline: “New Wave of Workers Tries Novel Approach: Save More.” Reporter E. S. Browning tells of young couples and individuals who, shocked by the financial difficulties their parents are encountering, are sharply cutting their spending to reduce debt and/or grow their nest eggs. Browning supports his anecdotal evidence with some statistics. For example, 44% of employees under age 25 participated in their companies' 401(k) retirement plans in 2011, up from just 27% in 2003, according to data from Vanguard Group Inc. The participation rate of the 25-to-34 cohort rose to 63% in 2011 from 58% in 2003. Also, according to one survey, the portion of Americans under 35 with credit-card debt shrank to 45% in 2010 from 63% in 2002. This age group was the only one that saw average credit card balances fall — to an inflation-adjusted $4,100 from $5,100 — although student-loan debt remains crushing. “More saving means less consumer spending in the short run, which holds back growth,” Browning observes. “But savings provide the raw material for investment, and, in the long term, higher investment leads to an expanding economy.” The U.S. economy is famously 70% dependent on consumers, which probably won’t change much in the foreseeable future. To the extent that those consumers are increasingly aware that they must spend less and save more to ensure their own financial well being, however, economic growth could turn out to be less volatile and more sustainable than in the days of self-indulgent instant gratification. So, hip-hip-hurray for the young adults who are determined not to get too soon old and too late smart.
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