Saving for a Rainy Day

...is completely out of fashion. Today's Wall Street Journal has a page one article that discusses how many states are facing serious budget shortfalls because the business cycle is turning down after many years of expansion. The result? Big cuts in programs.

Health services, among states' fastest growing costs, are being cut across the country. Ohio is closing two mental-health facilities as state agencies look to shed $733 million. The state is also cutting a program that provides free nicotine patches to smokers.

Virginia's funding for hospitals and nursing homes to care for the poor and elderly was reduced by $76 million over the next two fiscal years, according to an analysis by the Commonwealth Institute for Fiscal Analysis in Richmond, Va. Maine is cutting money for foster care, mental-health services and "flexible funding," which social workers can spend on specific needs for clients.

"Our concern is the fact that the government has assumed responsibility for these things, and now they're basically saying, 'We can't do it anymore,'" says Richard Farnsworth, executive director of Portland, Maine-based Woodford Family Services. "Now the question is, 'Who's going to do it?'"

To be fair, the article does say that some states actually had savings set aside for economic downturns. I'd love to know which ones. (Hint: it's not California. We spend like drunken sailors.)

The profligacy in the government is matched at home, unfortunately.

The sun has shone steadily on the US economy for well over a decade – long enough that many forgot about rainy days. And with the memory lapse, saving for a rainy day became a long-lost practice. But the rain has begun to fall, and a prolonged wet spell is forecast. With savings rates perilously low, US consumers may suddenly get frugal. The consequences would be grim.

US consumers’ savings rates are among the lowest in the OECD. They always have been, but the wedge has widened in recent years. Back in the early 1990s, US consumers saved about 7% of their disposable income. By the latter 1990s that was down to the 4% level, and in the new millennium the rate sank to 2%. This dropped further – close to zero – as booming growth continued. Americans spent nearly all that they earned in the 2005-07 period.

You know what would be cool? Remember when the anti-smoking campaigns first started out a long time ago - how the government sponsored (and still does) ads against smoking? Wouldn't it be great if they started doing the same thing with financial responsiblity?

I'd love to see a national campaign to educate the populace about this. Here's my plan. Step 1 - expose everyone to Dave Ramsey's radio show. Step 2 - watch the foreclosures melt away and the predatory lenders go out of business. Step 3 - sit back and let the good times roll! When trouble hits, everyone, people and governments alike, will have money saved away to deal with them.

Well, I can dream, can't I?