Blake Schwendiman's Blog and Blook

Did you know that since the 1960's the United States has had the lowest net savings rate of any of the G-7 countries (with one or two very minor exceptions)? That means as a group of people (US citizens) we personally save less money than any of the other six countries that make up the most powerfully economic countries in the world. In fact, we save a lot less in many cases.

I've been thinking about saving for a long time and I've come to the simplistic conclusion that we're too complacent. We have an economy that's great, plentiful credit and even in recent bad times, nobody seems to have a long-term memory. I've heard the following quote many times in my life (incorrectly attributed to various influentials):

Those who understand interest collect it; those who don't, pay it.

It's only been recently, however, that the phrase has had much personal interest to me. For me the honest reason that I've never saved much is that I've been looking for a faster investment -- not appreciating the value of compounding interest, I recognize. I've had the mindset that if I could find the right investment that would double or triple in a year or two (yeah, right) I'd put all my eggs in that basket, then diversify after that.

So far that hasn't happened. So this year I decided to start saving the way it's supposed to work. That is, I've taken a little money each week and put it away. I have diversified in three places:

• ING Direct
  I've mentioned ING Direct a number of times in the past (see here). ING Direct is so simple. Just set up direct deposit from your employer or transfer money from your bank account (ING Direct allows you to automate this) and earn at a much better interest rate than your bank offers. ING Direct even has interest-bearing checking accounts!
• Prosper
  I've also mentioned Prosper before (see here). Prosper is a person-to-person lending and borrowing service where you can literally set your own interest rate. I've been an active lender at Prosper for a couple of months now and I've helped fund a few loans. My commitment to each loan is about $50, so my exposure (the chance of losing money) is lower than if I had lent the total amount to a single loan. Prosper provides detailed information on each loan being offered including the borrower's credit grade, current liabilities, debt load and other risk factors. You can fund loans with as much or as little risk as you prefer. One very cool thing is that until the end of the year, if you sign up at Prosper (using one of my links) we both get $25. You get $25 after your first loan is funded -- same for me. If you're at all interested in Prosper, take advantage of the free $25. That's an infinte return on investment.
• Sharebuilder.com
  Sharebuilder.com is a traditional stock trading account, but with minimal investment levels and fees. Sharebuilder.com allows you to start for next to nothing and make small, gradual investments over time. Right now, I invest about $100 per month and I have selected a plan that costs about $12 per month and provides 6 free trades. I then have Sharebuilder.com automatically purchase six stocks that I have selected on the first Tuesday of each month. At $100 per month, I'm not buying whole shares of stocks (for example, I own about 1/5 share of Google right now), but Sharebuilder.com pools the actual stock purchases allowing individuals to buy into the stock market a little at a time. Sharebuilder.com also has a referral program (click any of the links in this article) that pays $25. If you join, you'll get your $25 four weeks after your first trade goes through. I get trading credits if you join, just FYI.

I'm not trying to sell you on a program, I just think it's past time that Americans start putting some money away. If you don't start today, then when? Don't defer because it takes too long -- that's the reason I believe we've never done well. We need to be a long-term society, not a short-term, pay-it-on-credit society if we want to be a country of importance at the end of this century. Otherwise I think we'll literally be owned by China (but that's a story for another day).