We just don’t save like we used to. After reading this article, it got me thinking, “Why don’t we save like we did twenty years ago?”.

Well I think when you dig a little deeper, the answer is obvious.

Back in the 1980s, it was very common to receive 8-10% return on savings in a normal bank (internet banks with high interest savings accounts did not exist back then…). Compare that to the 1-2% offered today at local banks.

Also back then, interest rates on loans soared in the high teens which made buying anything on credit a spendy proposition. Now with home rates under 6% and even signature loans hovering below 8% buying on credit has become a lot more lucrative.

Why let your money sit around and only earn 1 or 2% interest when you could be enjoying more things on credit at only 6 or 7% penalty?

Considering that the inflation rate averages between 3-5% a year, you actually lose money by earning only 1-2% interest per year. In fact, your 6% house loan actually only costs you 1-3% after adjusted for inflation.

I think if anyone wants to reverse this trend, they need to first encourage savings by offering us a way to gain money over time after inflation rather than lose money.

I know I have recently started to save aggressively, but not due to the reasons outlined above, but rather my lack of trust in the failing economy. (And I’m using online banks paying 3-4% interest versus the 1.2% offered locally.) That is the only reason I see for anyone to save using a regular “savings” account at a local bank in today’s market conditions.

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