Why Saving Money Whilst On Benefits Should Not Be Punished
Why should I pay my taxes in order to support Bob when Bob has savings of his own?
This is a legitimate question I hear a lot but in reality a person on benefits who is financially prudent and spends money carefully, depositing disposable income in the bank, is far more productive than a similar person on similar benefits who spends their money on cigarettes, alcohol, branded clothing, holidays and so on. One is exporting wealth, the other is financing production through their bank who is lending it 10:1 to Jack to make a farm and produce crops, wool, milk etc. Jack increases local supply and brings prices down for you and me.
The whole house-of-cards fiat economy relies on savers for the economy to function. If you remove the savers at the bottom, the cards fall down and the economy tanks. If you add savings, you can expand the economy.
Of course the bank may decide to lend those savings to the feckless couple up the road so that they can buy a house 20x their annual wages. But that is not the fault of the saver. In a true free market where banks are allowed to collapse, this wouldn't happen as the banks lending practices would be under much more scrutiny.
There are a number of moral hazards which have been created in Western financials sector. One of these has come about from governments offering to step in and support depositors when a bank hit the skids. It is not the role of government to do this, but nonetheless it has. The result is that no time is invested in the due diligence process when a person decides with which bank to deposit their money. They simply assume their money is safe--that it's guaranteed. And they'd be right, for the most part it is guaranteed, and rather than let the bank default the government will step in and pay off the liabilities. Because of this, nobody cares what a bank does with their deposit once they have deposited it. They don't look around to what that bank is doing with other peoples money. Why should they care? If the bank makes stupid or reckless decisions, the government will come to the rescue anyway. So the precedent is set; the bank is free to what it likes with very little scrutiny, no damage to it's reputation and nobody is likely to make a withdrawal because of anything dodgy the bank does. The result? Toxic loans, liar loans, subprime loans, whatever you want to call them. In short, risk-taking, or gambling.
In a healthy free market economy banks would concentrate on making loans to local businesses and producers--something which in turn would increase the standard of living for everyone.
Savings in the UK have been falling for a long time, compared with many developed countries our savings are at crisis levels. So many people believe saving money is hoarding wealth, and as a result savers are shunned and ignored. It's baffling. What's more, it will end in tears.
Being prudent should never be punished or discouraged even if that person takes money from the state, in fact it should be rewarded with healthy interest on savings above the rate of inflation. If that is how a person wishes to use the money allocated to them by the state, then good for them and good for us. Are those allocations too high? Is the benefits culture too rewarding in the first place? Perhaps, but cutting your nose off to spite your face does not a happier taxpayer make.