Garon: A savings account at the post office
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January 12th, 2012
08:38 AM ET

Garon: A savings account at the post office

Editor’s Note: Sheldon Garon is the Nissan Professor of History and East Asian Studies at Princeton University. He is the author of Beyond Our Means:  Why America Spends While the World Saves.

By Sheldon Garon – Special to CNN

To pass the time over the holidays, my daughter and I vied to come up with the longest list of things that “Americans say are impossible, yet exist everywhere else in the First World.”  Top on both lists was national health insurance, followed by a nationwide network of fast, attractive trains.  But the next item would surprise most Americans: A postal savings system.

In nearly every country in Europe and East Asia, one can open a savings account at the post office.  These accounts typically carry no fees and require no minimum balance or a low one.  To avoid competing with banks for larger depositors, postal savings accounts are capped at an amount that serves families of modest means.  Even the United States had its own postal savings system from 1911 to 1966.

Were the United States to revive postal savings, we would kill two birds with one stone.  Elsewhere, postal savings have proven effective at improving the access of lower-income individuals and youth to savings institutions.

Americans are notoriously poor savers.  The personal savings rate dropped to nearly zero before the 2008 crisis; it briefly rose, but has recently fallen below 4 percent.  By contrast, Germans, French, Austrians, and Belgians have saved more than 10 percent over the past 30 years.  A big problem is that one-fourth of low-income Americans are “unbanked.”  They have no savings or checking accounts. 

Banks tend to drive small savers away by imposing onerous fees and high minimum balances, forcing many to pay even higher fees at check-cashing services.  Because it’s unlikely most banks will suddenly discover their social conscience and introduce no-fee small savers’ accounts, postal savings would be an excellent way of encouraging saving.  A century ago when American banks faced competition from the government-run postal savings bank, they promptly opened their doors to small savers.

Second, postal savings offers the best shot for “saving” the Post Office itself.  The U.S. Post Office is not unique in suffering declining revenues from delivery services as customers shift to online communication and shipping companies.  Yet in many other countries, from France to Japan, post offices have discovered that the key to continued profitability lies in postal financial services.  Indeed, the recent global financial crisis prompted savers to return in droves to state-guaranteed postal deposits.

The revival of postal savings is one of several policy recommendations in my new book, Beyond Our Means:  Why America Spends While the World Saves.  I tell the global story of how nations in Europe and East Asia encouraged ordinary people to save over the past two centuries.  They did so by establishing various small savers’ institutions - including savings banks, postal savings systems, and school savings programs.  In America today, it has become painfully clear that millions lack the savings to cope with medical emergencies, job loss, foreclosures, and retirement.  Worse, many families are hopelessly indebted.  What might we learn from the rest of the world in our efforts to restore some balance between household saving and debt?

In addition to postal savings accounts, the book recommends other means of promoting saving.  The government should incentivize banks to offer small savers’ accounts.  In France, the state subsidizes the popular no-fee "Livret A" an account available at post offices and all banks.  Also, the U.S. government should take the lead in promoting financial education in every school, so to increase youth literacy about saving, investment, mortgages, credit cards, and student loans.  This is the norm in German schools; in Japan, an agency within the central bank helps standardize financial education curriculum.  The new Consumer Financial Protection Bureau could play such a role here.

Moreover, this is a good time to revise tax laws to encourage low- and middle-income people to save.  While granting paltry incentives to the vast majority, the U.S. tax code does a great job of encouraging affluent Americans to save in retirement accounts - as if they needed the extra push.  Perversely, the system grants the lion’s share of tax benefits to savers and homebuyers in the highest tax brackets, promotes overinvestment in housing, and fosters indebtedness by making interest on home equity loans tax-deductible.

Two thirds of wage-earners do not itemize deductions, and thus, they do not benefit from the vaunted mortgage deduction.  Politics aside, we could easily redesign the tax code to balance saving and borrowing.  One way to universalize retirement savings accounts would be to offer working people a substantial tax credit, rather than a deduction.  We might also consider the tax-free treatment of small savings as in France and Germany.

For the last several decades, America has been preoccupied with democratizing credit.  Surely, the time has come to democratize saving. It should be as easy for any American to open a savings account as it is to get a credit card.

The views expressed in this article are solely those of Sheldon Garon.

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Topics: United States

soundoff (96 Responses)
  1. Ed

    A few questions. First what is to be done with the money? Will it be sucked off into wasteful government projects and replaced with IOU's like the Social Security money. Secondly, The USPS is already broke, how will they be able to pay interest. Thirdly, will the USPS have to follow the laws of banking - reporting, cash reserves, etc? Finally, how will this money be guarenteed? FDIC? If the government spends it won't it eventually add to the debt when we have to borrow money to pay it back. I can remember as a kid in the 50's/60's buying savings stamps. Maybe a better way to go.

    January 15, 2012 at 10:16 am | Reply
  2. jon

    Nice thought... but having spent 20 years in banking I can tell you that some people simply don't have the skills or dicipline to have a savings or checking account. These are the people who used to visit the bank with a shoe box full of checks and receipts trying to get someone to balance their account for them. The same people who thought their current balance was their actual balance, having no concept of checks being outstanding and not cleared yet.
    The other major issue is the fact that government will just spend the money invested at the post office and then borrow when the money is all spent.

    January 15, 2012 at 10:16 am | Reply
    • Floretta

      Possibly if those people had been started in savings as very small children – and financial literacy made as much a part of the curriculum as reading and math – there would be fewer individuals with the lack of "skills or discipline" you observed. I don't have the skills to repair a car motor but it's not because I'm dumb but because I was never taught how. You need more than a once a year bank-hosted finance fair to expose children and their parents to money matters, from the basic idea of compounding to overdrafts, interest, lines of credit and on up to borrowing versus lending, mortgages and investing basics.

      January 15, 2012 at 10:45 am | Reply
  3. astroboi

    Postal savings would not help many poor people. They don't trust the govt and for good reason. Imagine a person checking his postal savings balance only to find it zero'd out because some govt agency confiscated his money to pay a student loan, some court fine, maybe even a parking ticket. And of course he would now owe a variety of fees, fines and service charges for being in that position. Look, they confiscate tax refunds and they cancel welfare payments to those who win govt sponsored lotteries. And don't forget, a lot of poverty level people have "cash only" income, payments that just don't get reported to the IRS. You can insist that these people are all petty crooks, freeloaders or whatever and deserve to have their money confiscated but this is the world they find themselves in and if the only way to buy food or pay the rent is to stiff the taxman, well, that's what they will do. For these people, saving will probably mean hiding money under a loose floorboard and I wonder if more money is saved in this manner than anybody knows.

    January 15, 2012 at 10:22 am | Reply
  4. Mike

    Just what we need. Another 10,000 government workers with big pensions.

    January 15, 2012 at 10:32 am | Reply
  5. Andre

    With mail volume plummeting, this idea is too late. Any side ventures the Post Office gets involved in will be jeopardized as it will need to keep shutting down facilities. None of them, including this, require anywhere near the current number of workers, plus it's a totally different type of work requiring training from scratch. Better for people to open an account with an existing bank rather than at a post office with a good chance of closing soon.

    January 15, 2012 at 4:06 pm | Reply
  6. humblewatchman

    That is a good idea. Key Bank is charging me monthly for a paper statement. I am angry!!!! I have been with them for over 20 years, and now because I don't want to risk my personal and bank account information by banking on line, I am being charged for what they have provided me for over 20 years.....a statement!!! Will the electric company start charging me for their billing statements and stamps too now??? I let Key Bank them use my money for free....for years!!!! I don't have an interest bearing checking account. I should send them a damn bill. I want them to know how unfair this is and how angry I am. I already sent them a letter of protest and they sent me back a robo letter explaining to me that they are charging the monthly fee from now on....like I didn't know that.....jerks. My only hope is that this protest spreads around the country via cyber space...specially since they trust its safety so much.!!!!!!!!!!!!!!

    January 15, 2012 at 7:06 pm | Reply
  7. rightospeak

    The US Post Office 'problem ' was really well addressed by a comment from Floretta that most people are not familiar with. The Post Office crisis was created by CORRUPT politicians in Congress to force the public opinion in the direction of PRIVATIZATION. Some powerful people who want to destroy the U.S. Post Office in order to benefit from its demise , stuffed the pockets of our Congressmen with money to make the USPO appear in crisis.
    The idea of a post office saving bank may have some merit, but probably would not work. People in Europe pay their utility bills at post offices , but it is changing. As far as young people saving money or anyone for that matter -you can bring a horse to water, but you can not make him drink it.

    January 16, 2012 at 11:40 am | Reply
  8. lavenderlady.63

    I am old enough to remember when my teacher would take our class once a week to the Post Office to put money into a savings account. That was a great lesson. I continued to put money into that account until the post office ended postal savings. It taught me how to save. Bringing back Postal Savings is a great idea.

    January 16, 2012 at 7:17 pm | Reply
  9. Dan Robinson

    The USPS could make a mint selling ad space as is done on city buss's and taxi cabs. Only the mail jeeps leave the main thoroughfares to travel (and be viewed on) every street in the US. While they're at it, those big blue boxes could carry ads, too. And if you really want to rake in the cash, how much would the big companies pay to have "Colgate" or "Ford" on postage stamps.

    January 17, 2012 at 4:05 pm | Reply
  10. Todd

    Politicians tie the post office's hands, they can never do anything unless the boys in Washington give their approval, by the time approval is given ITS TOO LATE. Mr Obama, please help the post office

    January 17, 2012 at 9:05 pm | Reply
  11. kamana

    Lemme see if I’ve got this right: the money put into postal savings earns no interest, right? So what the postal service has there amounts to an interest-free loan, right? the postal service than puts the money into a bank account that earns, say 3% right? the postal service than uses the money earned to run the service, right? Hell, it seems to me the postal service got a winner there without it costing the taxpayers anything. What’s all the nay saying about?

    January 17, 2012 at 10:57 pm | Reply
  12. Melania

    Now a days kids need to learn savings steetagirs very early on otherwise it's easy to get carried away and waste all $$ in unecessary things. Tips: 1) Give kids a small allowance/week as long as they earn it with good behavior, chores, grades, etc. 2) Have the kids pay for things with their own allowance so they don't get used to credit cards or freebies (particularly from the parents') 3) Get them a prepaid cell phone. For safety reasons, all kids should have a cell phone but should also know how to use it wisely. A prepaid plan teaches kids that there are limits to the time they have available for calls (minutes) and are likely to limit their calls to necessary ones. 4) Have the kids give you a few $$ of their allowance each month to pay for their prepaid card. Helps learn to budget and will appreciate their minutes even more. 5) Have the kids set aside some $$ every month for gift-giving for b-days, holidays, grandparents, teachers, charity, etc. Teaches them the importance of sharing and giving back.

    March 12, 2012 at 8:34 am | Reply
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