June 18, 2008 — While the United States government encourages people to spend their economic stimulus checks to boost the economy, a professor at the University of Virginia's Darden School of Business says Americans should do the opposite.
Ron Wilcox is a former Securities and Exchange Commission economist and author of "Whatever Happened to Thrift?: Why Americans Don't Save and What To Do About It." He says people should try to save part of their stimulus checks. According to the IRS, the majority of eligible Americans should receive their checks by mid-July.
Wilcox says a lack of savings in American households will have disastrous consequences for the country as a whole. He shares savings advice for individuals, the government, and businesses.
Wilcox encourages people to save part of the stimulus checks they receive and to consider the following:
• Don't let too much of your savings get eaten up by fees and taxes.
• Carefully calculate the amount you put into your 401(k) plan.
• Teach your children how to save.
He gives the following recommendations on steps the government should take to increase personal savings:
• Tax consumption rather than income.
• Create low-cost retirement savings system for small business employees.
• Create a government-sponsored matching savings plan for low-income individuals.
He says small businesses and corporations can provide for their employees' financial futures by:
• Setting defaults on 401(k) plans so employees are automatically enrolled unless they explicitly choose otherwise.
• Offering employees the fewest number of investment options to eliminate confusion paralysis.
• Sweeping employees' raises directly into an employer-sponsored retirement plan.
In his blog about money and savings, located at usthrift.wordpress.com, Wilcox disagreed with the approach the government has taken to encourage personal spending.
"The U.S. Treasury Department reported that it has so far sent about $50 billion in stimulus checks, returning some tax money to all but upper-income taxpayers," Wilcox wrote. "From the time this stimulus package has been conceived, the government has worked hard to convince us that the patriotic thing to do would to be to blow the entire check as soon as it arrives."
Founded in 1955, U.Va.'s Darden School of Business is a professional school that works to improve society by developing leaders in the world of practical affairs.
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