Encouraging Pessimism for Greater Savings?

(Photo: Aric Riley)

During the Social Security lecture to my class of 500 freshman, most expressed disbelief that the program would exist when they retire.  Like a young colleague of mine, they were sure they would never collect.

Wrong!  I can’t see the program being abolished.  It is very popular, and its potential bankruptcy is one of the most easily dealt with policy problems we face:  just raise the age for regular benefits by one year in each of the next four quinquennia, raise the taxable base for FICA, and voilà — problem solved.

But perhaps my students’ pessimism is a good thing.  If they believe this, and act on their beliefs, they will set aside more for their private pensions — saving more. Given the low American saving rates over the last few decades, maybe I should encourage their pessimism!