Tim Harford on Smarter Saving

It has always struck me as odd that borrowers regard monthly credit card bills offering a 12.5% APR as “cheap” whereas a long term savings deposit account paying 4% is regarded as derisory and unattractive. When it comes to savings behaviour smart decision-making can often fly straight out of the window.

The Undercover Economist Tim Harford has a super piece on smarter saving and behavioural economics in this edition of Parade magazine.

The article is timely, not just because of the sharp turnaround in household savings behaviour as recession has started to bite, but also given the long term issues of pensioner poverty and the underlying reasons why people tend to save so little for their retirement. The explanations lie in an optimism that things will turn out ok to information failure about the law of compound interest and a neurological preference for current consumption. Tim’s article touches on the work of Richard Thaler whose ‘save for tomorrow’ brand of compulsory saving schemes seems to be in vogue with a cluster of leading politicians.

And his piece is optimistic about the likely savings behaviour of a new generation

“Thanks to the present financial turmoil, today’s teenagers will probably have much less trouble saving when they hit adulthood. They’ll have seen firsthand that saving is not about using your money to invest and make a killing on stocks or real estate; it’s about putting some of your money safely aside in an uncertain world.”

The article can be found here - highly recommended

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Unit 4 Macro: Money, Debt and the New World Order [22 Jan 2012]
France and Flexible Employment [22 Jan 2012]
Unit1 Micro: Processed Meat and Cancer Risk - Information Failure? [17 Jan 2012]
Unit1 Micro: Can a minimum wage create jobs? [16 Jan 2012]
Unit 2 Macro: Frontier Markets - the New BRICS? [15 Jan 2012]
Unit 4 Macro: Economics of Fiscal Deficit Reduction [12 Jan 2012]
Unit 4 Macro: UK Bond Yields Reach Record Lows [11 Jan 2012]
Unit 2 Macro: Factors Driving Business Investment [10 Jan 2012]
Economics at the Movies - Freakonomics [9 Jan 2012]
Unit 4 Macro: Natural Disasters and their Economic Impact [7 Jan 2012]
Unit 4 Macro: Exchange Rate Economics - Where next for the US Dollar? [31 Dec 2011]
2011 in Review - The US Economy [27 Dec 2011]
Unit 2 Macro: The UK Housing Market in 2011 [26 Dec 2011]
Economics of Deforestation [20 Dec 2011]
Unit 4 Macro: The Rise in Self Employment [17 Dec 2011]
Unit 4 Macro: Does UK Manufacturing have a Future? [30 Nov 2011]
Behavioural Economics: Herd Behaviour [28 Nov 2011]
Where is the UK Economy? National Output [22 Nov 2011]
Beyond the Bike - What is the value of life in Africa? [19 Nov 2011]
LSE Lecture: Daniel Kahneman - Thinking Fast and Slow [15 Nov 2011]
Unit 2 Macro: Should the EU introduce a Tobin Tax? [14 Nov 2011]
Unit 1 Micro: Asymmetric Information - Buying a Used Car [14 Nov 2011]
AS Macro: The State of British Business [13 Nov 2011]
Unit 2 Macro: Video Clips on Unemployment [6 Nov 2011]
Unit 3 Micro: Impulses to Change Management Models [5 Nov 2011]
Unit 3 Micro: Time of Use Pricing for Energy [2 Nov 2011]
Unit 4 Macro: Should TNCs make full disclosure on factory wages? [30 Oct 2011]
Unit 3 Micro: UK Executive Pay - All in it Together? [29 Oct 2011]
Unit 3 Micro: Drop Box and Freemium [18 Oct 2011]
Unit 2 Macro: Positive and Negative Multiplier Effects [14 Oct 2011]
Can the “invisible hand” solve Africa’s poverty? [13 Oct 2011]
UK Unemployment in October 2011 [12 Oct 2011]
Unit 4 Macro: Unit Labour Costs and Inflation [12 Oct 2011]
Unit 2 Macro: UK suffers a weak recovery [12 Oct 2011]
Why Is Macroeconomics Such A Mess? [11 Oct 2011]
Unit 3 Micro: Monospony Power and Low Wages in Care Homes [3 Oct 2011]
Unit 3 Micro: Tube Drivers set to earn £50,000 a year [3 Oct 2011]
NMW: Classical real-wage unemployment [3 Oct 2011]
Unit 1 Micro: Drink Driving and Government Intervention [26 Sep 2011]
Unit 4 Macro: Greek Economy at Default’s Door [25 Sep 2011]
Unit 4 Macro: IMF Flags up Risks of Double Dip [20 Sep 2011]
Unit 2 Macro: Economic Growth and Inequality [14 Sep 2011]
Unit 2 Macro: Income and Wealth in the UK [12 Sep 2011]
UK Macro: Risks of a Double Dip Recession [12 Sep 2011]
50% tax rates - Chuck it George [7 Sep 2011]
Mixing with the Nobel Economists [4 Sep 2011]
Unit 4 Macro: GDP per person since the credit crunch [19 Aug 2011]
Unit 4 Macro: Savings and Banking to enhance Development [16 Aug 2011]
Monetary Policy Roundtable [25 Jul 2011]
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Unit 4 Macro: Dangers of High Inflation [11 Jul 2011]
Unit 2 Macro: Reducing Unemployment after a Recession [11 Jul 2011]
Unit 3 Micro: Oligopsony - Dairy Losses Drive Farmers from the Fields [10 Jul 2011]
Where there’s muck there’s brass [6 Jul 2011]
Global Economy: Increased risk of future shocks [28 Jun 2011]
AQA ECON4 Context [20 Jun 2011]
A2 Macro: Consumer Spending [30 May 2011]
Macro Revision: Putting Things in Context [25 May 2011]
AQA Macro: Remember to revise inflation [25 May 2011]
AS Macro Key Term: Cost Push Inflation [24 May 2011]
AS Macro Key Term: Inflation [24 May 2011]
AS Macro Key Term: Trend Growth [23 May 2011]
AS Macro Key Term: Economic Recovery [23 May 2011]
AS Macro Key Term: Recession [23 May 2011]
AS Macro Key Term: The Output Gap [23 May 2011]
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A2 Micro: Business Growth [18 May 2011]
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AS Micro: Offering heart drugs by default [5 May 2011]
Interest Rates Held at 0.5% once again [5 May 2011]
A2 Micro: Innovation in Markets [4 May 2011]
AS and A2 Macro Revision: Keynesian Economics [28 Apr 2011]
A2 Micro: EU Aviation - State Aid and State Ownership [28 Apr 2011]
A2 Macro: Back to Roubini - a Year On! [11 Apr 2011]
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AS Micro: Prices for New and Second Hand Cars [9 Apr 2011]
AS Macro Key Term: Double-Dip Recession [8 Apr 2011]
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AS Macro Key Term: Under-employment [7 Apr 2011]
AS Macro Key Term: Fiscal Austerity [6 Apr 2011]
AS Macro Key Term: Aggregate Supply Shock [6 Apr 2011]
Focus on Poland [5 Apr 2011]
Tracking the effects of the recession on GDP [5 Apr 2011]
AS Macro Key Term: Expansionary Monetary Policy [4 Apr 2011]
Information Failures: Tesco and Second Hand Cars [3 Apr 2011]
Timetric: Unemployment in the US Economy [1 Apr 2011]
The Scale of Remittances [1 Apr 2011]
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