While these people receive decent salaries, they lack savings and readily accessible funds. The study finds that 66% of these families are middle class, with a median income of $41,000. These families also have a median net worth of $41,000 even though they do not own liquid assets. Researchers say that these findings are surprising and that they do not expect these people to be living paycheck to paycheck.
The reason as to why these middle class families don't put away their cash in the bank or the stock market isn't clear. Greg Kaplan, assistant professor of economics at Princeton University, suggests that many people believe that housing and retirement funds will bring them better returns in the future. He also found out that people who prefer to put all their money into illiquid assets are able to consumer more in the future. People would rather own a home even though they won't have a lot of spending money.
http://money.cnn.com/2014/04/25/news/economy/middle-class-paycheck/index.html?iid=SF_E_LN
The lack of savings in America is surely partly due to culture and the fact that U.S savings is lower than investment definitely contributes largely to the large trade deficit that the U.S has with China, as in China there is higher savings compared to investment.
ReplyDeleteYou Just cannot predict peoples personal behavior according to economic theory. Even though economic theory dictates that it is sensible for people to put their savings into something productive (inherently speaking an interest bearing account) that will not always be the case and whether or not this has to due with cultural factors or just personal reasons, it kind of dampens economic theory as a whole.
ReplyDeleteI agree with Amanda, Americans are more prone to spending than most cultures. This is one of the reasons we like the idea of credit cards and access to loans. We spend money we don't have, which further decreases our propensity to save.
ReplyDeleteThis s hard for me to understand as I come from a culture oriented towards saving for the future due to the lack of standard government programs like social security or unemployment benefits. The overall decline of SS due to baby-boomer demographics hopefully will push people into saving more.
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