WASHINGTON, D.C.—With American consumers' savings rate hovering at zero for the last six years, a number of organizations—financial, government, and non-profits—are mounting an effort to reverse this pattern.
To understand why Americans are unable or unwilling to save, the non-profit Consumer Federation of America (CFA) partnered with a financial services company, Wachovia, to sponsor a national survey to find out who is saving and what works best for them to save.
The survey found that more than half of Americans (52%) say they are not saving or not saving adequately. It also found that the majority of young adults say "impulse spending" and "spending to feel good" make it difficult for them to save. Ways to induce Americans to save more, such as education programs and financial institutions facilitating saving, were asked about in this survey.
"This survey… provides new insights into not only how American save but why they do or don't. Among other findings, it reveals the importance of socio-psychological barriers to saving and easy access to attractive accounts," said CFA Executive Director Stephen Brobeck.
The survey, entitled "America's Saving Habits and Challenges," consisted of interviews of more than 2000 representative adult Americans conducted by Opinion Research Corporation on November 8-12. The margin of error was ±02%. The survey's findings were released to the public on December 10 at the National Press Club.
The survey and press conference are aiming towards the anniversary of America Saves Week, starting Feb. 24. More reports by CFA are planned between now and February '08.
One could question the objectivity of a survey when one of its sponsors is Wachovia Corporation, which has a financial stake in attracting customers and encouraging them to save.
Kathryn Black, Senior Vice President of Wachovia said that her company provided the financial support for the national survey, but Consumer Federation of America (CFA) was responsible for the survey and the analysis, under the direction of CFA Executive Director Stephen Brobeck. She said Wachovia personnel commented on the questionnaire but had no part in running the survey or the analysis.
Majority Not Saving Adequately
Seventeen percent of Americans say they cannot afford to save at all. The percent doubles (34%) for low income Americans (under $25,000) who say they cannot afford to save.
35% say they are saving some but not enough. These people say they can't save enough to meet all their short and long term financial needs, such as unexpected car repairs, emergency dental treatment, basic needs if lost one's job, retirement, and so on.
Together, people who save inadequately combined with the people who can't save at all comprise over half the adult population (52%). Most of the rest of the population, 44%, say they are saving adequately or have already saved enough.
The survey also asked Americans about their own perceptions of other Americans saving habits. Nearly half (47%) said Americans are saving "very inadequately," and 79% said Americans were not saving "adequately."
"Americans are pessimistic about how other Americans are saving and how they will save in the future. In part this pessimism probably reflects widespread press coverage about the country's zero or near-zero personal savings rate," said Brobeck.
Impulse Buying Discourages Savings
When the persons who could not afford to save or who saved inadequately were asked why it was difficult for them to save, economic factors are cited most often. Nearly two-thirds (66%) cited a low or unreliable income; 72% cited unexpected expenses.
It's to be expected that economic factors would be the most commonly mentioned reason, but non-economic reasons are cited as barriers to saving too. More than one-third (37%) give "impulse spending" as a reason, 42% cite "credit cards, 29% cite "spending to feel good," 20% cite "social pressure from friends or family, 15% cite "trips to the mall," and 8% mention "playing the lottery or gambling."
Contrary to some common stereotypes, higher income groups reported more problems with impulse spending than lower income groups. Of the highest income groups (over $75,000), 46% said impulse spending made it difficult to save compared to 32% for those with incomes below $35,000.
Young adults 18-24 years old, who are not saving adequately, were far more likely than older Americans to cite social and psychological factors as important barriers to savings. Young adults mention these pressures much more often.
Over half (53%) of the young adults cited "impulse spending" as an important reason for having difficulty saving compared to the overall at 37%. Spending to feel good (54%), social pressure from friends or family (38%), trips to the mall (32%) affect the young adults much more than the rest of the population. This may explain why this demographic group is most likely to say they are not saving adequately (62% vs. 52% for everyone).
"Savings programs need to direct special attention to young adults and, in doing so, try to reduce social and psychological as well as economic barriers," said Kathryn Black, SVP and Savings Director for Wachovia.
How to Save
The consensus of the press briefing that finding a way to make the saving automatic is extremely helpful. Examples might be contributory retirement program like a 401(k) and automatic transfers from checking or payroll deposits to savings.
More knowledge about the impact of interest compounding might help a lot. Respondents were told that saving $200 a month for 30 years at a 5% rate would accumulate over $300,000. The survey found that 80% said this knowledge was important in persuading them to save.
'American Saves Week' Next February
American Saves Week was launched last February when a number of financial institutions and businesses, philanthropic (e.g., The Ford Foundation) and nonprofits (e.g., AARP, Consumers Union, United Way, National Council of La Raza), and government agencies (e.g., Department of Defense, IRS, Security and Exchange Commission, Federal Reserve Board) led the effort to educate and encourage people to get into the habit of saving.
The U.S. military is a good example. In an October 2007 memorandum sent to all the military services, Under Secretary of Defense David S.C. Chu said DOD would be working with the non-profit partner, the Consumer Federation of America, to focus on military youth and children during "Military Saves Week 2008."
"Military Saves supports our troops and their families by… [creating] a culture that encourages our members to save and build wealth and avoid the downward spiral of debt," said Under Secretary Chu.
Consumer Federation of America (CFA) is a nonprofit consumer organization that, since 1968, seeks to advance the consumer interest through research, education, and advocacy, according to CFA's literature. The CFA is composed of some 300 nonprofit organizations with a combined membership exceeding 50 million people.
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