A wake-up call for Americans to save
By Michelle Singletary
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What will it take to make Americans save more?
Survey after survey continues to point out the obvious: U.S. households are keeping very little of their incomes.
A recent analysis of the habits and attitudes about saving in America found that most people know they're not saving as much as they should. But they aren't concerned enough to do a darn thing about it, according to a recent survey by the Pew Research Center's Social & Demographic Trends project.
Three out of four Americans say they aren't saving enough, according to the telephone survey of 2,413 adults conducted earlier this year.
Even the country's wealthiest acknowledge they aren't saving enough, the survey found. Six in 10 adults (61 percent) with family incomes of $150,000 or more say they aren't putting away enough for the future. Among those earning between $100,000 and $150,000 a year, the proportion increases to 79 percent.
This nationwide "savings shortfall," as Pew dubbed it, is the majority situation in virtually every key demographic group — rich and poor, male and female, black and white.
"While uneasiness about savings is broadly felt, these feelings apparently don't run deeply enough to motivate action," wrote Richard Morin, senior editor for the Pew project.
In another survey released last month by Pew and the Gallup organization, a majority of respondents said they hadn't improved their financial lives in the past five years. Twenty-five percent said they hadn't moved forward while 31 percent said they had fallen backward.
This is "the most downbeat" assessment of Americans' financial progress in nearly half a century of polling by both organizations.
Part of the pessimism comes from the fact that for the past two decades, middle-income Americans have been spending more and borrowing more. Here's why, according to Pew:
I have no doubt that the recent rise in gasoline and food prices, higher home prices, slower wage growth and debt payments all hindered people's ability to save. But this savings slide has been going on for decades. The truth is when times were good, people who could save still didn't.
Now that times are bad, families are worried, according to the Pew survey released in April.
Slightly more than half of middle-class respondents said they've had to reduce their spending in the past year and they expect to have to continue these cutbacks in the year ahead. A quarter of the people in this same group said they expected to have trouble paying their bills. And about a quarter of the middle class who are employed worried that they could lose their jobs.
How much are people saving when they do put money away?
On average, as a country we are saving less than 1 percent of our incomes.
Some experts like to point out that the savings rate figure doesn't tell the whole story and that Americans aren't as big of spendthrifts as the statistics show.
Technically, it is true that the national savings rate does not include capital gains on investments (stocks, bonds, mutual funds) and real estate. Perhaps people were so elated about the paper gains in their investment portfolios and appreciation in the value of their homes that they became overconfident and just stopped saving.
But as we all have seen recently, relying on paper gains can get you into a heap of financial trouble.
What if you can't bleed more equity out of your home to bail yourself out of a financial bind because the house's value has declined or you no longer qualify for a home equity loan or line of credit?
I know some people don't save because they figure that if things get tough, they'll just use their credit cards or borrow against the money built up in their tax advantaged retirement portfolios or just cash out the accounts altogether.
Tapping your home equity (if you even can) and raiding your retirement accounts are strategies of last resort — not ones that you turn to first or even second. What you need to turn to first is a cash reserve.
I am not — like many people — bemoaning the economic downturn. I think in one respect, it's a good thing. It's what this consumer-driven, debt-laden country needed. Far too many people put off saving when their incomes were good and their employment was stable. You can't always save enough to stave off every crisis, but even a small rainy-day fund can help you get through some financial storms.
So this is what it takes — tough economic times — to remind folks that putting money away isn't just something you know you should do. It's something you desperately need to do.
Reach Michelle Singletary at singletarym@washpost.com.
