Washington, DC, January 29, 2019 --  

The government shutdown shows the tragic consequence of America's refusal to save.

When American government offices reopened Monday after 35 days of partial shutdown, workers gave a sigh of relief. About 800,000 federal workers went without pay during the shutdown¹ and even more federal contractors were affected.

The shutdown had seen an outpouring of sympathy for those furloughed. Just 26 days in, celebrity chef, José Andrés hosted an emergency kitchen in Washington, DC to feed government employees.² And a few days before that, the Capital Area Food Bank set up an emergency food distribution center in suburban Rockville.³

But just hang on a second. Paychecks went out normally on December 28, so the first missed payday came on Friday January 11⁴. The Capital Area Food Bank opened its food distribution center aimed at federal employees the very next day. Are federal employees really so hard up that they have to resort to food donations within hours of missing a paycheck?

Tragically, this might be true. Federal workers are not immune from the American malaise of living paycheck to paycheck. Fifty years ago, Americans saved a whopping 12 percent of their disposable income, giving them security in case of emergency expenses, a lost job, or a furlough due to a government shutdown. As of last summer, the Bureau of Economic Analysis reported the personal savings rate had dropped to just 3 percent.

This statistic was adjusted in August to a new methodology that counts income underreported to the IRS, boosting the personal savings rate to over 6 percent.⁵ But dig deeper into those numbers and you find it is not salaried workers, but the rich, with their dividends, capital gains and interest income, that are doing all the extra savings. For working Americans, the idea of saving money for a rainy day remains totally out of style.

This is particularly striking in the case of the government shutdown because, as in all other shutdowns, the government promised back wages to employees (though not contractors). This was never a issue of employees losing income -- it was simply an issue of being paid late. And with furloughed employees eligible for unemployment⁶, there was little risk of a long-term absence of income, just an issue of short-term cash flow.

What is wrong with Americans that they are not prepared for such a mild financial bump in the road?

The typical explanations use anecdotes about poor workers struggling to make ends meet. But similar workers managed to survive 50 years ago, when Americans' disposable income (adjusted for inflation) was only 25 percent of what is is today.⁷ Back then, workers not only lived on less money, but somehow managed to save 12 percent of their disposable income. At that rate, working just one year would put away enough savings in the bank to see a worker through the longest government shutdown in history. Why did so many of today's workers not have those savings? What will happen if these people face a serious downturn with layoffs that take away paychecks not just weeks but many months? How could these people ever have survived the Great Depression?

The big difference from 50 years ago is much higher rates of consumer spending. Modern American culture is all about buying stuff (cars, clothes, televisions, etc.) that would had been considered luxuries two generations ago. Worse yet, Americans want stuff immediately, requiring credit purchases that further drain incomes with interest. But just because this behavior is common doesn't mean it is responsible. There are no laws saying that Americans have to blow their money on credit-driven luxuries.

Of course, it's easy for the comfortable to criticize the spending and saving habits of those with less. It is important to be conscious of the challenges that poorer Americans face. This author grew up nearly 50 years ago in a poor household that didn't save money, with a mother regularly worrying about having the money when the rent came due. But that household also had no cable, had only a tiny black and white TV and one of the cheapest compact cars manufactured in that era.

There will always be cases where people don't have the means to cope with a downturn. This is the whole point of a safety net. But a safety net should exist to cover the rare cases, not the typical cases. American workers fortunate to have a good stable job -- government or otherwise -- must be expected to save money for a rainy day, and take primary responsibility for taking care of themselves when times get tough. The impact of the recent government shutdown show that for a large percentages of American workers, this just isn't happening. Rather than celebrating that government checks are once again coming, workers would be wise to start saving for the next time they stop.

Related Web Columns:

Stuff they Don't Need', June 19, 2018

Notes:

1. Forbes, The Real Financial Impact Of The Government Shutdown On Workers, January 14, 2019

2. Washingtonian, Hundreds of Furloughed Government Employees Flocked to José Andrés' DC Emergency Kitchen Today, January 16, 2019

3. National Public Radio, Federal Workers Struggle To Stretch Their Money As Shutdown Lingers, January 14, 2019

4. NBC News, Federal Workers Miss First Paycheck as Shutdown Poised to Become Longest in U.S. History, January 11, 2019

5. Slate, Americans Are Saving More Than We Thought. At Least if They're Rich, August 20, 2019

6. Federal News Network, A Furloughed Federal Employee's Guide to Filing for Unemployment During the Shutdown, January 2, 2019

7. See Stuff they Don't Need