Posted by Tim Stobbs on February 4, 2009
Over at the Globe and Mail there is part of an article that is driving me a little crazy. It’s called Save Your Money or Save the Economy (pick one). It’s like most other articles that I’ve seen lately that seem to say that we shouldn’t be all saving our money, because we need to spend to get out of this recession.
What drives me nuts about that logic is overspending and too much debt is what got us partly into this mess. Saving over the long haul might actually do more good in my mind. Over the short haul I agree its going to hurt the economy, but it might be required.
So how would savings help? Let’s refresh our memories here. Not too long ago a savings rate of 10% was common and they world was not crying out for people to spend more. It was a balance of some savings and some spending. The economy was fine. So why can’t we be there again? From my point of view what we are seeing in the economy is the removal of overspending that has become so common for a while that people consider it normal when it really isn’t. Once that overspending is removed of course the economy is going to shrink, it shouldn’t have been that big in the first place. So now everything is going to have to readjust to a new normal level of spending.
Here’s a another reason why savings in my mind are good. Credit markets will flow again. Banks with new deposits can lend more money. You think the federal government is doing much buying $125 billion in mortgages? You should see what we collective can do with TFSA’s. If just 10 million of us on average max out those accounts (at $5000 each) you will see $50 billion in savings injected into the banks and other investments. Times five years and we could collectively have $250 billion put away plus interest. That could help in the long run don’t you think?
So overall I’m not buying the logic that I’m suppose to spend. I’ve yet to excessively spend so far, so why would I change now? So what are your thoughts on the saving vs spend debate?