A Savings Account at the Post Office?

Sheldon Garon, who was our guest at a recent discussion of his new book "Beyond Our Means: Why America Spends While the World Saves" has a very interesting piece up on CNN.com that centers on his call to support small dollar savings in the United States by establishing a system of postal savings banks (a common and effective institution in the rest of the world):

"In nearly every country in Europe and East Asia, one can open a savings account at the post office.  These accounts typically carry no fees and require no minimum balance or a low one.  To avoid competing with banks for larger depositors, postal savings accounts are capped at an amount that serves families of modest means.  Even the United States had its own postal savings system from 1911 to 1966."

That's a good frame for the piece and a solid idea in and of itself. However, given the latest data on savings I think it's actually best to focus on the end of the piece. The Personal Savings Rate is low again, down around 3.5% and recent trends show rising credit uptake (something David Frum was unhappy about from his new perch at The Daily Beast). We saw a rising savings rate during and immediately after the financial crisis and recession, but we've always felt that without structural changes that promoted savings, we were likely headed back to very low savings rate territory. That story isn't fully written yet, but Professor Garon has some suggestions that (while buried in the CNN piece) are very provocative:

Moreover, this is a good time to revise tax laws to encourage low- and middle-income people to save. While granting paltry incentives to the vast majority, the U.S. tax code does a great job of encouraging affluent Americans to save in retirement accounts - as if they needed the extra push...Two thirds of wage-earners do not itemize deductions, and thus, they do not benefit from the vaunted mortgage deduction. Politics aside, we could easily redesign the tax code to balance saving and borrowing. One way to universalize retirement savings accounts would be to offer working people a substantial tax credit, rather than a deduction. We might also consider the tax-free treatment of small savings as in France and Germany.

More and more an understanding has developed that a lack of savings played a critical role in the financial crisis. Developing savings to protect us against such shocks should be a priority going forward. For better or for worse, structural changes are most likely to be effective in bringing about that change, and it's good to see Professor Garon pushing that message.