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A Dollar’s Worth: Inflation Is Real
Understanding the reality of inflation can help consumers make decisions in personal finance. Learn more about inflation, how it’s measured, and how the inflation rate is calculated in the December 2021 issue of Page One Economics: Focus on Finance.
Journal Article
Savings programs associated with VITA
There are thousands of Volunteer Income Tax Assistance (VITA) sites across the country and more than 250 in Texas. Located at libraries, community colleges, churches and community-based organizations, these sites pop up during tax season in areas accessible to low- and moderate-income (LMI) workers.
Working Paper
Why Do Couples and Singles Save During Retirement?
While the savings of retired singles tend to fall with age, those of retired couples tend to rise. We estimate a rich model of retired singles and couples with bequest motives and uncertain longevity and medical expenses. Our estimates imply that while medical expenses are an important driver of the savings of middle-income singles, bequest motives matter for couples and high-income singles, and generate transfers to non-spousal heirs whenever a household member dies. The interaction of medical expenses and bequest motives is a crucial determinant of savings for all retirees. Hence, to ...
Journal Article
Negative Sentiment toward Spending and Declining Real Incomes May Meaningfully Lower Consumption
Despite a contraction in real GDP in the first half of 2022, consumer spending has remained resilient. We examine a set of factors that have historically affected consumption growth and find that excess savings have boosted consumer spending during the COVID-19 pandemic. However, as excess savings decline and economic relationships normalize, negative sentiment toward spending and declining real incomes may meaningfully lower consumption.
Journal Article
Why Are Americans Saving So Much of Their Income?
For much of 2020, Americans have saved a greater share of their income than ever before. This increase in savings appears to be predominantly driven by precautionary motives. Therefore, consumers may be reluctant to draw down these savings in the future to support spending.
Journal Article
Features: Rethinking Retirement Savings
How much is enough to live comfortably in retirement? Would $30,000 a year be enough? Maybe if you live in a low-cost area, and the house is paid off. How about $15,000? It would be a stretch, at best. Yet recent census numbers indicate millions of Americans over the age of 65 must figure out how to make ends meet on these incomes. A quarter of seniors, almost 14 million retirees, live on only $15,000, while a little over half, 29 million retirees, live on only $30,000 a year. For these Americans, the prospects of a comfortable retirement appear uncertain.
Working Paper
The Smart Money is in Cash? Financial Literacy and Liquid Savings Among U.S. Families
Most financial advisors recommend storing three to six months of expenses in liquid assets in case of an emergency. Yet we estimate that more than half of U.S. families do not have at least three months of their non-discretionary expenses in liquid savings. We find that financial literacy is strongly predictive of having three months of liquid savings, controlling for income, income variability, and even parental resources. We also find that financial literacy predicts liquid savings across the income distribution. These results indicate that accumulation of an emergency fund is not ...
Discussion Paper
What Is the Outlook for China’s External Surplus?
The sharp slowdown in China’s property sector has reignited debate over the country’s future role as a net provider of savings to the global economy. The debate revolves around whether a sustained decline in property investment will spur a long-term increase in China’s current account surplus, given the country’s high savings rate. However, China’s rapidly aging population presents opposing forces that complicate this story. The shift of a large share of its population from working life to retirement will reduce savings supply even as a shrinking labor force will reduce investment ...
Working Paper
Optimal Paternalistic Savings Policies
We study optimal savings policies when there is a dual concern about undersaving for retirement and income inequality. Agents differ in present bias and earnings ability, both unobservable to a planner with paternalistic and redistributive motives. We characterize the solution to this two-dimensional screening problem and provide a decentralization using realistic policy instruments: mandatory savings at low incomes but a choice between subsidized savings vehicles at high incomes?resembling Social Security, 401(k), and IRA accounts in the US. Offering more savings choice at higher incomes ...
Journal Article
The Rise and Fall of Pandemic Excess Savings
U.S. households built up savings at unprecedented rates following the strong fiscal response and lower consumer spending related to the pandemic. Despite recent rapid drawdowns of those funds, estimates suggest a substantial stock of excess savings remains in the aggregate economy. Since 2020, households across all income levels have held a historically large share of savings in cash or other easily accessible forms. Estimates suggest that those funds could be available to support personal spending at least into the fourth quarter of 2023.