By: Sheldon Garon, Nissan Professor of History and East Asian Studies, Princeton University
January 12, 2012
Bring back postal savings
To pass the time over the holidays, my daughter and I vied to come up with the longest list of things that "Americans say are impossible, yet exist everywhere else in the First World." Top on both lists was national health insurance, followed by a nationwide network of fast, attractive trains. But the next item would surprise most Americans: A postal savings system.
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.
Were the United States to revive postal savings, we would kill two birds with one stone. Elsewhere, postal savings have proven effective at improving the access of lower-income individuals and youth to savings institutions.
Americans are notoriously poor savers. The personal savings rate dropped to nearly zero before the 2008 crisis; it briefly rose, but has recently fallen below 4 percent. By contrast, Germans, French, Austrians, and Belgians have saved more than 10 percent over the past 30 years. A big problem is that one-fourth of low-income Americans are "unbanked." They have no savings or checking accounts.
Banks tend to drive small savers away by imposing onerous fees and high minimum balances, forcing many to pay even higher fees at check-cashing services. Because it's unlikely most banks will suddenly discover their social conscience and introduce no-fee small savers' accounts, postal savings would be an excellent way of encouraging saving. A century ago when American banks faced competition from the government-run postal savings bank, they promptly opened their doors to small savers.
Second, postal savings offers the best shot for "saving" the Post Office itself. The U.S. Post Office is not unique in suffering declining revenues from delivery services as customers shift to online communication and shipping companies. Yet in many other countries, from France to Japan, post offices have discovered that the key to continued profitability lies in postal financial services. Indeed, the recent global financial crisis prompted savers to return in droves to state-guaranteed postal deposits.
The revival of postal savings is one of several policy recommendations in my new book, Beyond Our Means: Why America Spends While the World Saves. I tell the global story of how nations in Europe and East Asia encouraged ordinary people to save over the past two centuries. They did so by establishing various small savers' institutions - including savings banks, postal savings systems, and school savings programs. In America today, it has become painfully clear that millions lack the savings to cope with medical emergencies, job loss, foreclosures, and retirement. Worse, many families are hopelessly indebted. What might we learn from the rest of the world in our efforts to restore some balance between household saving and debt?
In addition to postal savings accounts, the book recommends other means of promoting saving. The government should incentivize banks to offer small savers' accounts. In France, the state subsidizes the popular no-fee Livret - an account available at post offices and all banks. Also, the U.S. government should take the lead in promoting financial education in every school, so to increase youth literacy about saving, investment, mortgages, credit cards, and student loans. This is the norm in German schools; in Japan, an agency within the central bank helps standardize financial education curriculum. The new Consumer Financial Protection Bureau could play such a role here.
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. Perversely, the system grants the lion's share of tax benefits to savers and homebuyers in the highest tax brackets, promotes overinvestment in housing, and fosters indebtedness by making interest on home equity loans tax-deductible.
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.
For the last several decades, America has been preoccupied with democratizing credit. Surely, the time has come to democratize saving. It should be as easy for any American to open a savings account as it is to get a credit card.