Summary of Dr. Scholz's Presentation "Retirement Planning for Young Adults and Others - A New Perspective on Financial Management Assumptions about Savings and Spending"

Dr. Karl Scholz, Ph.D., Professor of Economics, University of Wisconsin, Madison, presented a contrarian point of view to traditional retirement savings paradigms, contending that that there may not be a “financial savings crisis” among young Americans.   According to Dr. Scholz, saving should be balanced over a life-cycle of consumption choices meant to maximize the well-being of oneself and one’s family. Too much emphasis on savings may persuade young families to forego certain expenditures, creating hardship for children or limit investment in household or family infrastructure or other ventures. The societal emphasis on savings also causes anxiety that affects overall life satisfaction, and could create tax policies for saving that disproportionately favors affluent taxpayers. Lastly, the focus on Americans’ lack of savings could divert attention from the people who truly need financial help.

He also talked about the problems with replacement rates used to calculate how much people need to save for retirement. Dr. Scholz claimed that the flaw lies in the assumption on how much Americans will need to save to keep their standard of living consistent into retirement. He went on to discuss how this assumption should be directly tied to how many children people have, since families invest in children during their younger years and shed those expenses as they retire, freeing up money to save for retirement and continue the lifestyle developed during parenthood. He presented detailed statistics supporting his theory and illustrating that younger households with children were actually saving adequately. 

Dr. Scholz concluded that if he is correct that most Americans are on the right track to maintain their standard of living into retirement, the time and effort of financial experts could be better used to identify and help those populations who truly need financial support. He also stressed the important potential his research could have on financial education. There is a need to create new guidelines and financial tools that emphasize the life-cycle model at the core of his research and help young people spend money wisely in all stages of life.

Dr. Scholz's presentation materials are available here.