A Penny Saved is Mobility Earned

Nov 19, 2009

As the saying goes, “A penny saved is a penny earned,” but does that penny saved translate into greater economic mobility? Movement up the income ladder is fairly limited for children of low-income parents—42 percent of children born to parents on the bottom rung of the income ladder remain on the bottom rung a generation later. To date, however, there has been less analysis that shows clearly how income mobility differs based on one’s own or one’s parents’ level of savings. This paper clearly demonstrates the relationship between savings and economic mobility.

Using data from the Panel Study of Income Dynamics (PSID), the paper first explores whether having parents with high savings (i.e., above median savings) or having high savings oneself, improves one’s chances of making the climb up the income ladder,
or prevents one from falling down it. Second, it examines federal incentives and disincentives to savings in the federal tax code and public assistance programs. And third, consistent with the project’s recently released nonpartisan policy road map to enhance mobility, it makes recommendations on ways public policy can be improved to encourage savings, especially among low- and moderate-income families.

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