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Princeton Historian Traces Story of Savings

Annamaria Lusardi, director of the Global Center for Financial Literacy, listens as Princeton’s Sheldon Garon takes questions after delivering a presentation of GWSB’s fall Financial Literacy Seminar Series. (Photo by Julie Woodford)

Sheldon Garon said Americans might save more if they had access to small institutions such as the U.S. Postal Service and school savings banks that helped children and middle-income families save money in the 20th century.

Garon, a professor of history and East Asian studies at Princeton University, authority on household savings, and author of Beyond Our Means: Why America Spends While the World Saves, was the inaugural speaker of the School’s fall Financial Literacy Seminar Series, which kicked off Sept. 20.

Addressing a packed room in Duquès Hall, Garon traced the history of savings institutions and programs in Europe and the United States.

In European nations, postal savings banks gave people in provincial towns access to formalized savings, he said. School-based accounts exposed children to the concept of thrift, a lesson that was underscored by advertisements such as one featuring a pig-tailed schoolgirl admonishing classmates to save their coins instead of spending them on candy.

The lesson that saving money was good for the individual expanded during the war years, when people were urged to invest in savings bonds as an act of patriotism.

Meanwhile, in the United States, regions such as the West and South had little access to savings, compared with the Midwest and New England, as late as 1910, when a law creating postal savings banks was enacted. Those banks were abolished in 1966.

During World War II, Americans mirrored European behavior by investing in war bonds, but views on savings began changing in 1948 with the post-war housing boom, when “Americans began to think of their savings as their housing,” said Garon.

The decline in American savings that began in the 1980s was precipitated by several factors, he said, including the decline in small savings institutions (including failed savings-and-loan associations), and the widespread availability of credit, including home equity loans.

To revive savings, Garon called for better access to banking for lower-income households; greater promotion of youth savings accounts; a revival of postal and school savings banks to accommodate small savers; and changes in tax law that would incentivize lower-income households to save.

The Financial Literacy Seminar Series, a joint initiative of GWSB and the Board of Governors of the Federal Reserve System, is spearheaded by Annamaria Lusardi, Denit Trust Distinguished Scholar in Economics and Accountancy and director of the Global Center for Financial Literacy.  The series brings together academics, practitioners, policy makers, and other experts for presentations and discussions of cutting-edge research on financial literacy. More information, including a list of speakers, videos, and papers, can be found here.

Posted by gwsb on September 25, 2012 | Filed under: GWSB News.

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