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Heeding Ben Franklin's advice

FROM the time of Benjamin Frankin in Colonial days to the present era of television and newspaper ads extolling the latest pitches about Individual Retirement Accounts (IRAs), Americans have looked upon saving as a virtue. Americans over the years have been a savings-oriented people. Savings have been considered important for families as hedges against unexpected economic adversity, and for the nation as a whole -- creating an investment pool to finance factories and industries, providing goods and services and jobs.

Given this historical role of savings, one cannot help but remark on recent statistics indicating that the United States savings rate is currently at the lowest level recorded since the 1950s. In September Americans saved a paltry 1.9 percent of their after-tax income. This contrasts with a savings rate over the last decade in the range of 6 percent to 8 percent.

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The irony is that the current dreary savings rate follows on the heels of the Reagan administration supply-side economic program, which, with its massive tax cuts, was designed to boost personal savings and thus, through new investment, revitalize the economy.

What is going on here?

Economists will surely want to measure the savings rate for another month or two before concluding that a fundamental reorientation in economic patterns is now taking place. It is true that Americans have been on a buying spree of late, due to discounts and low interest rates on cars and other big ticket items. To take advantage of such offers, families have been dipping into savings while also acquiring new long-term debt. Demographics are another factor: now that the large postwar baby-boom generation

has come to maturity, more families occupy the age group that tends to buy things than the age group that tends to save.

Still, many economists expect the savings rate to eventually return to the levels of the past decade, in the 6 percent or so range, now that more families are putting the new car in the garage, or installing the range in the kitchen. It would certainly be unfortunate -- and detrimental to the nation as a whole -- if that were not to occur. Currently, the federal government is looking abroad for much of the financing of the national debt. But that means that interest payments on the debt will more and mo re go abroad -- limiting the future economic options of Americans.

There are many steps that can and should be taken at the governmental and corporate levels to encourage savings. The current tax code, for example, could be restructured, as part of the tax reform effort, to encourage savings over consumption, rather than the opposite, as is now the case. At the business level, firms can be more inventive in providing savings programs for workers.

The savings issue needs to be kept in perspective. Compared with many other peoples, such as the Japanese, Americans do save less. Yet, as recent studies show, most Japanese families are far behind Americans in having the basic amenities of life, such as modern sewer systems for their homes. Americans have tended to be more pragmatic in looking upon consumption of basic items -- houses, cars, appliances -- as part of their ``investment'' cycle. In a sense, they are right.

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What is now important is that the pendulum swing back somewhat from the consumption side of their overall view of ``investment'' to the savings side as envisioned by Ben Franklin.

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