Uncle Sam wants you to save more money

Attention American consumers. President Obama is advertising the virtue of putting your money to good use by saving, not spending. In his radio address to the nation Saturday, Mr. Obama announced a package of changes designed to help more workers set aside more money.

The idea may seem counterintuitive, at a time when the economy could use all the consumer spending it can get. But the steps come as many families are failing to save enough for their own retirement -- and as the nation could use more savings as foundation for sustainable economic growth.

Some 78 million Americans don't have a tax-sheltered savings plan linked to their employer paycheck. Others are struggling to tuck away more money now because the recession has depleted their net worth.

Nationally, low household savings coupled with huge federal budget deficits means that the country’s overall savings rate is negative. Unless it turns positive, this means the nation must borrow funds from abroad to fund new investments in the economy.

Obama’s moves, which don't require congressional approval, come on four fronts. The Treasury will:

• Make it easier for firms to automatically enroll their workers in 401(k) and other retirement saving plans, by streamlining the process for changing the terms of plans. Workers can opt out if they don’t want to enroll, but by setting "save" as the default option more workers end up participating.

• Pave the way for employers to allow workers to convert their unused vacation or other similar leave into additional retirement savings.

• Offer a new way for people to save a portion or all of their tax refunds. In addition to the electronic deposit options that Americans already have, they’ll now be able to roll tax-refund money directly into US savings bonds, skipping some paperwork steps with the US Treasury.

• Create a "road map" on the IRS to help workers and their employers better understand the available options for tax-favored retirement saving, including for rollovers from one account to another when workers change jobs.

“We have to revive this economy and rebuild it stronger than before,” Obama said in his radio address, “and making sure that folks have the opportunity and incentive to save -- for a home or college, for retirement or a rainy day -- is essential to that effort. If you work hard and meet your responsibilities, this country is going to honor our collective responsibility to you: to ensure that you can save and secure your retirement. That is why we are announcing several common-sense changes that will help families put away money for the future."

The impact of these measures may be modest, but in a savings-short nation every bit counts. The steps add to other changes already under way.

The personal savings rate has been rising over the past year. Many employers have already introduced automatic enrollment in their retirement plans. Such measures capitalize on a finding of behavioral research: Many people run their financial lives more or less on autopilot. Where inertia has often kept people from opening a 401(k) account, now it's being used to nurture good savings habits.

Meanwhile, Obama's proposed budget includes other measures that, if approved by Congress, would boost savings.

One proposal would set up automatic work-based enrollment in individual retirement accounts for most workers at small firms that don't have 401(k) plans. Currently fewer than 1 in 10 Americans eligible to make tax-free contributions to an IRA does so.

The second proposal would expand the so-called "saver’s credit" in the tax code, a government matching program for personal savings that’s worth up to $500 annually per individual. More families would benefit from the credit, including lower-income households who don’t owe taxes.

Such changes won’t guarantee a high national savings rate. But economists say households are likely to focus more on building their nest eggs.

For its part, the federal government isn’t expected to make its deficits disappear any time soon. But there, too, it may not be long before economic pressures push Congress to shrink the deficit’s size.

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