{"id":245,"date":"2016-05-03T19:36:19","date_gmt":"2016-05-03T23:36:19","guid":{"rendered":"http:\/\/www.focus262.com\/blog\/?p=245"},"modified":"2016-05-06T10:03:53","modified_gmt":"2016-05-06T14:03:53","slug":"fed-thinks-i-should-be-spending-more-so-why-am-i-saving","status":"publish","type":"post","link":"https:\/\/www.focus262.com\/blog\/2016\/05\/fed-thinks-i-should-be-spending-more-so-why-am-i-saving\/","title":{"rendered":"Fed thinks I should be spending more, so why am I saving?"},"content":{"rendered":"<ul>\n<li>Stability, not low rates is likely to drive spending<\/li>\n<li>Uncertainty about the future leads to\u00a0conservative\u00a0spending\n<ul>\n<li>lower employee benefits and higher future expenses<\/li>\n<li>Unreliable investment returns<\/li>\n<\/ul>\n<\/li>\n<li>Central banks are doing what they can, but spending is out of their hands, and no one&#8217;s picking up the ball<\/li>\n<\/ul>\n<p>I am probably within the demographic that should be spending more in a low rate environment &#8211; In my late 30s, two growing kids, and fortunate enough to have good credit and a decent income. Fed models would probably assume that I am an example of how low rates should work &#8211; I should be buying a large home with low interest rates, reduce my savings, and spend more contributing to a spending boom.<\/p>\n<p>Instead, the opposite is happening. I am saving more of my income than before, and am looking at ways to downsize our lifestyle. Some of it may be philosophical, in trying to be a minimalist consumer family by choice. However, a large part of saving is driven by uncertainty about the future.<\/p>\n<p>With low current interest rates, it&#8217;s harder to assume high investment returns into the future, without moving up the risk spectrum. Therefore, \u00a0you need to save more today to feel confident about meeting the large future expenses of college education, healthcare and retirement.<\/p>\n<p>Despite low overall inflation, college education and healthcare costs have been growing at a pace higher than CPI, requiring greater savings, unless you are willing to assume greater investment risk.<\/p>\n<p>For an earlier generation, defined benefit pension plans (some with built-in cost of living adjustments) ensured that saving for retirement was not something you focused on during your peak earning years. However, with the move to Defined Contribution, or 401(k), employers are actually contributing <a href=\"http:\/\/www.economist.com\/news\/finance-and-economics\/21697234-economic-equivalent-st-augustines-plea-wrong-kind-savings\">less<\/a>, requiring individual savings to make up the shortfall. Additionally, now that most current members of the workforce are on defined contribution retirement plans, investment returns begin to factor into your ability to finance your retirement, as there is no deep pocketed employer to make up any shortfall. This adds to greater uncertainty, which makes you save more.<\/p>\n<p>I hesitate to buy a larger home purely based on the low monthly mortgage payments brought about by low rates &#8211; I worry about whether home prices will hold up in a higher rate environment down the line, unless higher rates are accompanied by sufficient wage growth. I am also concerned about potentially higher property and state taxes in the future, as governments try to generate greater income to pay for the shortfall in pension benefits.<\/p>\n<p>Central banks are doing their part by keeping rates low, even taking them negative. However, they are unable to bring about a sense of stability that can foster long-term planning to\u00a0steer people\u2019s expectations in the right direction &#8211; for that more than negative rates are needed.<\/p>\n<p>That is why, Janet Yellen, even though I should be spending, I am saving.<\/p>\n<p>Further reading:<\/p>\n<p><a href=\"http:\/\/www.economist.com\/news\/finance-and-economics\/21697234-economic-equivalent-st-augustines-plea-wrong-kind-savings\">http:\/\/www.economist.com\/news\/finance-and-economics\/21697234-economic-equivalent-st-augustines-plea-wrong-kind-savings<\/a><\/p>\n<p><em>Disclaimer: All views expressed in this article are that of the author and do not necessarily reflect the views of his employer or any of its affiliates.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Stability, not low rates is likely to drive spending Uncertainty about the future leads to\u00a0conservative\u00a0spending lower employee benefits and higher future expenses Unreliable investment returns Central banks are doing what they can, but spending is out of their hands, and <a class=\"more-link\" href=\"https:\/\/www.focus262.com\/blog\/2016\/05\/fed-thinks-i-should-be-spending-more-so-why-am-i-saving\/\">Read More &#8230;<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[5,9],"tags":[],"class_list":["post-245","post","type-post","status-publish","format-standard","hentry","category-behavior","category-financial-concepts"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p6zs9k-3X","jetpack-related-posts":[],"_links":{"self":[{"href":"https:\/\/www.focus262.com\/blog\/wp-json\/wp\/v2\/posts\/245","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.focus262.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.focus262.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.focus262.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.focus262.com\/blog\/wp-json\/wp\/v2\/comments?post=245"}],"version-history":[{"count":9,"href":"https:\/\/www.focus262.com\/blog\/wp-json\/wp\/v2\/posts\/245\/revisions"}],"predecessor-version":[{"id":254,"href":"https:\/\/www.focus262.com\/blog\/wp-json\/wp\/v2\/posts\/245\/revisions\/254"}],"wp:attachment":[{"href":"https:\/\/www.focus262.com\/blog\/wp-json\/wp\/v2\/media?parent=245"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.focus262.com\/blog\/wp-json\/wp\/v2\/categories?post=245"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.focus262.com\/blog\/wp-json\/wp\/v2\/tags?post=245"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}