Family Finances

Towards a Sensible System for Saving

January 1, 2006  • Financial Security Program

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Today, American savers are confronted with a dazzling array of savings choices-how to save, what savings plans fit their goals, and what types of savings and investment products suit them. Yet despite the proliferation of savings vehicles, the US personal savings rate became negative in 2005. This paper charts the development of savings plans and describes current plans and their usage. It concludes that a new agenda will be required to build the next generation of savings plans. Step one in that process means striving for simplification. Step two means building better plans. Step three means recognizing that what really matters the most for saving in the long run are outcomes. Traditionally, savings plan design has focused almost entirely on the first stage of saving: contributions and their tax incentives. But contributions alone do not make savings plans effective. A more sensible system for saving would set specific savings objectives and design plans capable of achieving them.