We Broke Our Savings
At its core, saving money is about shifting work from today to the future. When we save, our goal is to consume that value later—whether on groceries, healthcare, or travel—so that we don’t have to keep working indefinitely. Put simply, assuming no inflation, investments, or other financial factors, we spend 30–50 years of our working lives stockpiling cash so that one day, we can spend it when we aren’t earning it. Let me be very clear: you save money to convert extra work today into less work tomorrow.
From an economic perspective, saving is the process of moving our excess production—the value we create but do not immediately consume—from the moment of its creation to a point in the future. Historically, this could have meant farming extra land to feed an additional child, ensuring that when you grew old and weary, there would be extra hands to work on the land. From this self-interested perspective, raising an extra child was effectively an early form of a "retirement plan."
It Takes a Village
Now, let’s scale this idea up while staying in a small agricultural economy. For simplicity, assume each villager produces enough food to feed 1.2 people annually, meaning a 10-person village produces 12 units of food. With this surplus, the village develops two key economic functions:
Insurance
Each villager agrees to contribute 0.1 food units to a community pool at the start of the growing season. If someone's crops fail due to fire, pests, or illness, they can draw from this reserve to avoid starvation. Collectively, the village saves 1 unit of food each season for this safety net.
Investment
After eating and setting aside the insurance pool, the village still has 1 unit of surplus food. Instead of letting it spoil, they send a representative to a nearby trading city to find something of value in exchange.
In the market, the representative sees various goods but eventually meets a blacksmith offering a plow and scythe. The blacksmith explains that these tools will allow a single person to farm twice as much land. Excited, the villager trades the food for the equipment and returns home.
The next season, the tools prove their worth, doubling the villager’s productivity. The village now produces 13.2 food units. After eating and contributing to insurance, the village now has 2.2 food units to reinvest in more tools. Heck, might as well throw a party and buy a barrel of wine as well!
This cycle of investment and growth has driven human progress for millennia. With the rise of financial systems, we shifted from investing in extra farmhands and new tools to investing in pensions and retirement accounts. But along the way, we broke this cycle of investment.
The Shift from Real Investment to Financialization
For centuries, savings fueled tangible improvements— funding schools, building homes, or financing local businesses. But today, instead of using excess production to strengthen communities, we funnel our savings into massive financial institutions. Rather than lowering costs and improving daily life, we passively invest—increasingly through conglomerate-centric index funds— investing with the hope of innovation, better economies of scale, and most importantly seeing the stock chart to go up.
We shifted from an economic system of savings based on tangible savings and productive local investment to one that centralizes resources and decision-making in massive institutions. Instead of using our excess production to lower costs, strengthen local economies, and improve our daily lives, we have funneled our savings into passive investments— bid-up by global investors to the point of speculation—that pass allocation decisions to professional investors and CEOs leading to a concentration of economic growth in major urban centers. Furthermore, with a focus on percentage gains rather than real productivity, these professional investors have tended to seek rents and create short-sighted gains, at the expense of long-term economic growth.
The Problem with Outsourcing Our Investments
At a fundamental level, savings should enable future productivity and prosperity. But today, thanks to tax-advantaged investing in 401(k)s, IRAs, 529s, and HSAs (well over $27 Trillion by some estimates) , much of what we consider "investment" is only a bet on the growth of a few massive companies in the United States, making these investment speculative at best and financial engineering at worst.
Here’s how we got it wrong:
The Power of Passive Investment: Millions of people now invest their savings into index funds, which buy shares of the largest publicly traded companies. While this provides diversification, it also means that our collective wealth is being used to strengthen corporations that have little or no connection to our local communities. The result? Capital flows into companies that prioritize global supply chains, rent-seeking, financial engineering, and automation rather than local business development and job creation.
Rural Communities Are Funding Urban Growth: Many US towns are ‘dying out’ as the younger generations leave home in hopes of high-paying jobs, leaving their parents to age in place and fragmenting multi-generational family structures. For those who live in a small town or rural area and invest in the S&P 500, the money is effectively being used to create jobs and infrastructure in major financial hubs—New York, Florida, California, Texas, and other economic centers. Meanwhile, your own community struggles with job losses, population decline, and rising costs of living. By directing savings into these massive corporations, rural America is, in effect, making a bet on innovation and urbanization rather than their own community’s future prosperity.
Capital Consolidation and Institutional Control: The biggest players in the market—BlackRock, Vanguard, and State Street—now control trillions of dollars in assets and wield enormous influence over corporate governance. These institutions, which oversee most index fund investments, prioritize shareholder returns over community well-being. Their strategies often favor stock buybacks, executive compensation, and short-term gains rather than productive investments that could directly benefit individuals and local economies.
The Lost Art of Local Investment: In previous generations, wealth accumulation was directly tied to community development. People built housing, started businesses, and invested in local industries that created lasting prosperity. Today, those with extra savings are encouraged to passively park their money in financial markets rather than reinvesting in their own communities. This leads to a paradox: while national stock markets reach all-time highs, many local economies are stagnating or declining.
The Consequences of Outsourcing Investment
By funneling nearly all personal savings into massive institutions, we have created an economic system that prioritizes financialization over real tangible wealth creation which has lead to:
Local Economic Decay: Rural and small-town economies shrink as capital and talent are continuously siphoned away to major cities.
Housing Affordability Crisis: Instead of using savings to build more housing (not just have our own home increase in value…) and lower living costs in our own communities, we rely on centralized financial markets that contribute to asset inflation and housing shortages. Local labor (bars, restaurants, haircuts, shops, and local industry) is a direct function of housing costs - higher housing costs means industry is less cost-competitive and services become more expensive. For example, it is more expensive to hire a framer to build a house, if the framer is paying high rent due to high house prices…
Loss of Economic Self-Determination: Individuals have far less control over how their savings are used, as investment decisions are increasingly made by large institutions that prioritize corporate profits over community needs.
Rebuilding a Local Savings & Investment System
If we want to fix the broken savings model, we need to return to a system where savings directly improve our daily lives. This means focusing on investments that lower costs, create local jobs, and increase economic resilience. Here’s how:
Invest in Local Housing & Infrastructure: Instead of buying index funds, consider using savings to build rental properties, renovate homes, or improve local infrastructure. This not only increases housing availability but also generates stable, tangible returns.
Support Local Businesses & Cooperatives: Rather than passively investing in distant corporations, channel capital into small businesses, worker cooperatives, and regional enterprises that contribute to long-term community wealth.
Decentralize Investment Power: We need to move away from a system where a handful of global institutions control a vast majority of investment decisions. This could mean exploring alternative finance models like community investment funds, direct lending to local entrepreneurs, or regional banking cooperatives that prioritize local economic growth.
Shift Savings Toward Productivity, Not Speculation: The goal of investment should be to make life better—lower costs, improve efficiency, and create prosperity. Instead of chasing financial returns in abstract markets, we should focus on investments that have direct, visible benefits in our daily lives.
Conclusion: Choosing the Future We Want
In conclusion, while there is undeniable value of large corporations in driving economic progress, the financialization of our savings has distorted the fundamental purpose of investment. The concentration of capital in financial institutions and the passive flow of capital into global corporations has not only undermined local economies but has also diverted the true purpose of savings—enhancing future productivity and community prosperity.
Our ancestors saved and invested to secure their own futures and the prosperity of their communities; they built homes, developed their community, and passed down real, tangible wealth. Today, we have replaced that system with passive financialization, ceding control of our economic future to distant institutions that care little for our well-being.
As investors, we can support the critical role that large firms play in generating returns and fostering innovation, while simultaneously focusing on the need for a return to more locally-focused investment strategies. By shifting our focus back to investments that build tangible, sustainable value in our own communities, we can create a more balanced economic system—one that supports both the growth of globally competitive enterprises and the resilience of local economies, ultimately ensuring long-term prosperity for all.
If we continue down the current path of financialization, we risk finding ourselves in a world where our savings do not serve us—where the returns on our labor are siphoned into a financial system that benefits the few at the expense of the many; where real resources become scarce as financial returns are plentiful and inflationary.
But we have a choice. We can reclaim our economic power by reinvesting in what truly matters: our homes, our communities, and our futures. This approach not only redefines what it means to save, but also champions a future where investment serves the needs of the many, not just the few. The question is, will we make the choice to reclaim our economic future and reinvest in what matters most?
