The Problem with Perceived Savings
November 20, 2009
Post Tags: perceived poverty , perceived savings
Much of the savings in the US is Perceived Savings
Thought I could buy this
It used to be when people saved money they put it in a “savings” account and there it would gradually build a little interest and the savings would grow. There were also Certificates of Deposit, and Bonds, and a few other saving vehicles in which one could put their money and gradually see their “Savings” increase.
Then enter “Investment Savings”. These are more in the line of what I’m talking about as Perceived Savings. While the money put into this type of an account is real. The actual value of the account is not known till the money is taken out of the account. As long as it is in the account it has no “Real” value. But we treat it in our minds as if it does. We think of it as our “Savings”. But it really is just Perceived as Savings.
Last year when we saw the economy meltdown. A lot of the Perceived Saving disappeared. Perceived Wealth turned into Perceived Poverty.
But This is what I could afford
Granted before FDIC the same could happen to savings in a Bank. But the reason for FDIC is so those dollars in savings are real dollars and guaranteed. We might not gain much in that kind of a savings account, but we won’t loose money in it.
Why Investment Savings?
Because, while the risks are greater in this kind of an account so are the returns. (At least that’s the idea). There is a funny think about this type of an account that is a lot like gambling. I mean, we remember the gains in the account on good days and while we suffer through those down days, we tend to forget them quickly.
I’ve observed a few people at the Blackjack Table (I’ve never played myself) I’ve seen some take $20 and turn it into over $1000. But before the night was over they needed a ride back to their hotel. The $1000 was gone along with the original $20. Did they win a $1000 at Blackjack? Yes, they did. Did they loose more than a $1000 at Blackjack? Yes, they did.
Investment accounts these days are like a wild roller coaster ride. Up huge one day and down huge the next couple. Of course if you know when to get out and when to get back in you can make a good return on your “investment”. However, there are few who can do that consistently.
But back to my main point. Those invested dollars aren’t real dollars. Yet we “Plan” our economic future and strategy for the future based on a calculation of future returns in those investment accounts. The end result for many in the past 5 years, Perceived Savings ended up being Real Poverty.
As long as the perception of the economy was that it was humming along and everyone was making money we were all pretty convince everything would work out in the end. That no longer holds true.
Investment Savings are Looking Up
Those 401K accounts of 2007 that became 101K accounts last year are mostly back to 201 or 301K accounts for many. And a sense of Perceived Savings is returning. Remember, as long as the money is in the account it isn’t really there until we take it out.
Perceived Savings can, and often does lead to misconceptions of our true personal economic situation.
