During even darker days than these, Herbert Hoover famously called for "a chicken in every pot and a car in every garage." Today, what every American household needs more than a chicken - or a flat-screen TV - are financial instruments to save and invest their money.
After the vertiginous drop in American personal savings from the 1980s to the mid-2000s, the current economic crisis has reminded some people of the virtues of saving. Yet the recent, small turnaround is a far cry from what is needed. Tens upon tens of millions of Americans have no savings or investments, are deeply in debt, have negative equity in their homes and are completely unprepared for retirement, emergencies, or even many everyday needs.
A few months ago, President Barack Obama called for the creation of "tax-free universal savings accounts" to supplement Social Security. With the whirlwind of health care, climate change and other policy proposals batting around Washington, this one so far has received little attention.
It's more than a shame. By creating a system of private accounts now, we could help millions of Americans gain financial security and share in the nation's long-term economic growth. It would also provide a much-needed pool of domestic capital for investment.
Most Americans, in theory, can build a substantial nest egg over time. Consider this: Half of the very poorest Americans spend at least $12 on the lottery alone each week. If that money were instead saved and invested in the stock market - which, despite tough times like these, still offers the best long-term return - it would add up to $125,000 after four decades (assuming a 6.5 percent real rate of return).
While all too many households struggle to make ends meet, many families also lack the institutional support needed to build wealth. Most people, on their own, find it extremely difficult to devise a sound long-term saving and investment plan and then execute it in a disciplined fashion. That is why institutional support is critical. It lets average people outsource the tough parts of wealth-building to experts.
Workplace retirement plans are a perfect case in point. All you have to do is open an account and a portion of your paycheck will be saved automatically via direct deposit, then invested in the stock and bond markets where it will get the best return over time.
