Saving Big Bob and Martha

Each year, we, meaning our families and governments, find ourselves in an unsolvable dilemma; taxes, doing taxes and worry about how much we have to pay or how much the infamous they are is going to return to us (good luck with that). If you built a budget, did you account for your tax return or what you might have to send the IRS?

There aren’t too many of us who make a real budget, and there are even less of us who follow that budget we have so fastidiously prepared. When we put our income on one side of our balance sheet and our expenses on the other and there’s more expense than income, we’re in trouble. When we begin to decide we are going to cut expenses or find more income, there’s typically only one way to make it work and budget cuts is like opening a can of worms.

But other than preparing their budget, under rising budget constraints and new taxes, how can Martha and Big Bob make ends meet without selling off some of the current household goods or Big Bob’s lawn tractor? And why should they? There’s no money in their budget for non-essentials, but there’s no reason they can’t hold onto what they have work hard to get.

Martha and Big Bob have both worked jobs for practically all their lives and now, when they’re getting a little older, and Johnny and Jayne will start college soon, Martha and Big Bob are worried. They hadn’t saved, (Big Bob lost his factory job in 2008, but was lucky to pick up a restaurant management job at half the salary), but saving had never really been an option for them – they hit just north of a full tuition Pell grant. Jayne will start college next year and she wants to go to VSU, but the tuition is about $10,000, which is half of what Martha makes in a year. Johnny is headed to high school and hopes to get a football scholarship but with his height and weight, it is unlikely and he is a smart kid.

So where did Martha and Big Bob go wrong? Every week, even before Bob lost his job, the family promised that they would start saving. Christmas time rolls around and they buy a pile of gifts for their children and family, mostly on credit cards and what may have been extra money for savings is used for paying off debt.

Many of us imagine that next week we will begin saving, but we never do. According to Economist Shlomo Benartzi, it is  a behavior problem and it is shared by two-thirds of Americans.
We are a consumer society, we buy new stuff and when it goes out of style or the next new thingamajig comes along, what was cool then and not now, ends up in the trash or living a lonely life in the shed with all his friends.

Zen Buddhists say we should “live in the moment,” but I have never seen mentioned, in the eastern religious instruction, anything about a 401K.

Not only saving to put your kids through college or buying a new house you can’t really afford, it’s easy to forget saving for retirement. When my generation was entering the workforce our saving was geared short-term. We either thought we would never grow old enough to retire, retire independently wealthy or didn’t have enough foresight to realize we needed to save. And the 401K had not yet been invented. My mother, in her last years, lived on Social Security and she was OK.

“The fraction of workers at risk of having inadequate funds to maintain their lifestyle through retirement is estimated to have increased from 31 percent to 53 percent from 1983 to 2010,” Economist Richard H. Thaler wrote in Science Magazine. That means more than half of us will be fighting over space under an Interstate 95 overpass.

While some of us would participate in our company’s 401K plan if we were not too lazy to fill out the paperwork, there are still half of U.S. employees (78 million) that have no access to retirement plans at their workplace.

“What are we going to do about it?” Benartzi says. “We have to understand why people are not saving, and then we can hopefully flip the behavioral challenges into behavioral solutions, and then see how powerful it might be. Doing nothing is very common.”

One of the challenges when signing up for a 401K is feeling a loss of income – a psychological issue. But we risk far more than we could invest in a savings program. Did you know the average American citizen spent $1,000 a year on the lottery? Maybe not you or I, but there are a lot of people taking up our slack.

Benartzi’s “Save More Tomorrow” makes it easy. Once you decide to participate, a small amount is taken from your paycheck, say 1 percent; the following year you take part of your raise and add to it and the rest is yours and so on until you reach 15 percent, a savings amount needed to secure you retirement.

Personally, I think it’s a great premise, but the unknown in the workplace today may make you think  of other savings plans that force you to save if you are concerned with job security.

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