American Savings Rate Remains Inadequate

I feel like we have heard this before.  2005 and 2006 marked the first time since the Great Depression that our country recorded a negative savings rate in back to back years.  So, how did we do in 2007?  Actually, I have no idea.  It's kind of strange.  By early February, 2007, there were numerous articles to report our back to back negative savings rate.  Now, late February, 2008, I can't find any articles about how we did last year.  So, either the data is delayed compared to the last couple of years, or it was positive, and the journalists don't find that newsworthy.

In a glimpse of what the hard numbers may reveal, a recently released report, co-sponsored by America Saves and the American Savings Education Council, indicates that barely over a quarter of non-retired Americans save at least 10% of their income.  Citing advice made popular by books, the Wealthy Barber, the Automatic Millionaire, and the Richest Man in Babylon, the report notes that experts urge individuals to save at least 10% of their income.  That sort of begs the question, is 10% enough?  I'll address that in a later post.

More on the contents of the study.

Just over half of all respondents (53%) say that they save at least 5% of their income.  While just over a quarter (28%) say that they save at least 10% of their income.  Of course this means that nearly half of Americans are not even putting 5% of their income away.  The results are derived from survey respondents, so the usual margins of error and survey biases may exist. As a result, there may be a bias toward the positive as individuals tend to inflate their responses versus reality.

Here's where the results get really strange.  Despite the above numbers, 57% say that they are "saving enough for a retirement in which you will have a desirable standard of living."  What this says to me is that many believe that 5% is an adequate savings rate.  And even if we assume that to be the case, there are still 4% who don't even save 5% who say that they are saving enough!  How do they define enough?

Only 42% follow David Bach's advice in the Automatic Millionaire, and "save automatically through regular preauthorized transfers from checking to saving or investments."

And one that should be of particular interest to our friends in Washington D.C., only 41 percent "save a portion of tax refunds, gifts, bonuses, or other financial windfalls."  Perhaps the Economic Stimulus Package may have legs after all.

Not surprisingly, household income tended to be the most accurate predictor of savings.  81% of Households with incomes greater than $75,000 saved at least 5%, while only 34% of households making less than $35,000 saved as large a percentage.

Comments

[Sean John]

Should we tie credit score to savings since its recommended that you pay yourself first?

I'm really late.

And, since, banks can only loan on a multiple of money on hand?

Will there be less pandering to wealthy and institutional money?

[wealth money]

Nice blog, 5 out of 5 stars!

[James Morgan - Puritan Financial Advisor]

The results are derived from survey respondents, so the usual margins of error and survey biases may exist. As a result, there may be a bias toward the positive as individuals tend to inflate their responses versus reality.