Insurance Vehicles – A Part Of The Savings Solution

From the viewpoint of a distributor of annuities and life insurance, the current unsettled economic environment makes 2012 planning difficult. Our business is heavily interest-rate and public-confidence dependent. Sales of fixed rate, new money-based products like annuities often do poorly with low bond and treasury rates. However, sales momentum at year-end 2011 seems stable, even with 1.5% to 3% fixed rates. After all, what is the alternative? Public confidence is more problematic. How will U.S. savers make long-term decisions when they are unsure of what will happen with their jobs, their medical insurance and care, their corporate pensions, their Social Security, their tax bills, or their unemployment benefits? Our current political gridlock offers little hope of clarity until 2013.

You would think that recessions and uncertainty reduce savings as people must tap into these resources to maintain spending. However, a recent book, “Beyond our Means” by historian of savings Sheldon Garon, shows historical evidence of increased savings in times like these. In fact, the U.S. savings rate has actually rebounded to almost 6% from a low of 1.5% in 2005. Individual savings in the U.S. has been well below the rest of the world for the last 30 years (China today saves at a rate of 26%). Since the 1800s, much of the world, including the U.S. for the first half of the 1900s, operated with active government moral and programmatic support for broad public savings. However, savings bonds, postal savings and student stamp savings programs lost support in the U.S. after World War II and along with that support a thrifty ethic. For a few decades after, the U.S. rates still ranged from 7% to 11%, providing seed capital for government projects and for helping families weather economic storms. Now, however, we rely on China and our government’s money printing presses.

We have been bombarded with a steady stream of spending advocacy: President Eisenhower encouraged the public to go out and buy something, anything, to help alleviate a downturn, as have each of our last four presidents. Many economists fuel the “spending and consumerism=wealth” philosophy, reminding us incessantly that 70% of the U.S. economy is driven by consumer spending, as though it were a requirement (many foreign economies are under 60%). Legislation and regulation fueled that spending bandwagon as tax policy, and financial deregulation unleashed an extraordinary expansion of consumer credit and home equity loans, all resulting in an inevitably bursting bubble.

Even John Maynard Keynes, the premier proponent of extraordinary government spending during deep recession, though he denounced increases in citizen savings during recession, advocated savings programs, including mandatory ones especially in boom times. Our nation needs a renewed emphasis on savings and discouragement of profligate spending, not admonishments to buy. The insurance world’s contribution to savings vehicles can be a part of the solution. Will our “bounce off the bottom of the savings” world be permanent? If so, that will require government-supported savings policy. Then, the future will look bright for our accumulative insurance sales. The gospel of savings will impact all of us as dramatically as any changes in demographics, interest rates or product innovations.



Related terms: Word From The Wise

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