Friday, December 21, 2007

A baffling governmental decision.

Michelle Singletary recently wrote about the Treasury Department's decision to lower the amount of money an individual may invest in U.S. Savings Bonds in a year. So far, Treasury Direct doesn't make mention of this change, and I have no clue why the government would do such a thing. Do they really want the U.S. to go deeper into debt to the Chinese instead of our own citizens? You'd think that the government would want to encourage savings.

Perhaps it has something to do with fears of a contraction of the money supply in the wake of the credit crunch. That's the only explanation that comes to my mind, anyway. The official news release states that the purpose is "to refocus the savings bond program on its original purpose of making these nonmarketable Treasury securities available to individuals with relatively small sums to invest." Savings Bonds have always been very accessible to people with small amounts of money. You can buy an EE Bond for $25, and a paper I Bond for $50 or an electronic I Bond for $25. I don't see what allowing people with more money to invest more harms.

I suppose this will have little impact on the lives of 99% of the U.S. population. I Bonds seem like a reasonable choice for risk avoidance over the long term, but most people wouldn't buy $30,000 or 60,000 worth in a calendar year. Personally, I have just one $50 I Bond that I bought during my freshman year of college.

I plan to put a bit more into I Bonds when I turn 24. Thanks to the Education Tax Exclusion, they aren't a bad way to put a bit of money aside for college. Since I don't have any student loan debt of my own, I should be able to start saving a little for the education of potential children without negatively impacting retirement savings. I don't want to set up a 529 plan because I don't have kids yet, and I'm not sure I will. (I like children very much, but having them would probably require being in a serious relationship again at some point. I'm not so optimistic about that right now.) If I don't have kids or have kids who don't go to college, money in savings bonds can be put to some other purpose with no penalties. A few thousand dollars in inflation protected bonds would also serve as a great emergency fund once you've held the bonds for five years.

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