Saving in America: Patterns Reveal Room for Improvement

MBA (2/26/2008 ) Palaparty, Vijay
Americans’ saving patterns reveal mixed progress. Despite a struggling economy, nearly half of U.S. households say they save an adequate amount of money, according a survey from America Saves and the America Savings Education Council. But only 53 percent report savings of at least 5 percent of their income.
Nearly three-quarters of Americans, 73 percent, reported that they spend less than their income and save the difference, but only 28 percent save at least 10 percent of their income. More than two-thirds reported that they have enough emergency savings to pay for unexpected expenses. But 57 percent of those not retired said they are saving enough for retirement to have a desirable standard of living.

"Hard data about savings behavior suggest that responses to several questions were buoyed by the personal optimism of respondents," said Stephen Brobeck, executive director of the Consumer Federation of America.

More than three quarters of Americans said they will pay off all mortgage debt before they retire. But for retirement savings, workplaces have an opportunity to increase options for employees to save through a 401(k) or other plan, which only 55 percent of the non-retired reported having.

Only 62 percent of Americans said they have a goal-oriented savings plan and only 49 percent have a spending plan to achieve the goals of the savings plan. Only 42 percent save through automated means, such as monthly electronic transfers from checking to savings or investment accounts. Furthermore, only 41 percent save a portion of tax refunds, gifts, bonuses or other financial windfalls.

Serious debt was reported of concern to only 21 percent, who said their consumer debt is growing or remains unchanged.

The difference in savings is perhaps explained by income rather than other factors such as age, gender, ethnicity and education, which usually explain differences in savings habits and progress.

“The strongest relationship was between savings and income. Basically, results divided America into three groups. The data revealed that a large majority of households with incomes of at least $75,000, about half of those with incomes between $35,000 and $75,000, and a small minority of those with incomes below $35,000 are adequate savers,” Brobeck said. “Among all households in 2005, about 27 percent were high-income, 33 percent, were middle-income and 40 percent were low-income.”

Of those who save at least 5 percent of their income, only 34 percent in the low-income group versus 81 percent in the high-income group reported saving. Emergency savings funds are popular among 90 percent of the high-income group compared to only 48 percent of the low-income group.

Among those not retired, 85 percent of the high-income group, but only 28 percent of the low-income group, said they are saving adequately for retirement; 85 percent of the high-income group and 36 percent of the low-income group reported having a savings plan; and 72 percent of the high-income group versus 29 percent of the low-income group have a spending plan.

Members of the high-income group also had much more awareness about their future savings than the low-income group—72 percent versus 38 percent knew their overall net worth, 54 percent versus 28 percent save automatically through checking transfer and 55 percent versus 30 percent saved financial windfalls.

"A low income certainly makes it difficult to build adequate retirement savings but does not prevent developing saving and spending plans,” Brobeck said. "Regardless of income level, having a financial plan increases saving and financial stability.”