Unequal wealth and incentives to save

by James P. Smith

Two recent surveys of household wealth funded by the National Institute on Aging, one of households containing people ages 51-61 and the other of households containing at least one person over age 70, show not only tremendous racial and ethnic disparities in wealth but also great disparities between the poor and the wealthy that are not fully accounted for by differences in income. Household wealth is adversely affected by family breakup, worsening health, and stringent asset tests that provide a disincentive for the poor to save. Although middle-aged people seem to have savings adequate for retirement, those in their 20s and 30s do not. Our long-run policy goals should be to place realistic limits on Social Security and Medicare, to encourage private savings through such moves as a consumption tax and a mandatory Provident-type fund, and to change asset limits in means-tested programs for the poor.