May 14, 2008

Feeling Guilty

Americans Say They Aren't Saving Enough

Not Saving for a Rainy DayMost Americans say they’re not saving as much as they should — but they’re apparently not worried enough to do much about it, according to federal economic data and a recent survey by the Pew Research Center’s Social & Demographic Trends project.

Three out of every four Americans say they aren’t saving enough, according to the telephone survey of 2,413 adults, conducted from Jan. 24 through Feb. 19, 2008. What’s more, this “savings shortfall” is acknowledged by majorities of the rich and poor, male and female, black and white, as well as by the preponderance of those in virtually every other key demographic group.

While uneasiness about savings is broadly felt, these feelings apparently don’t run deeply enough to motivate action: Americans now save, on average, less than 1% of their incomes, and the savings rate has been in almost continuous decline for more than two decades. Other ways of measuring savings and wealth accumulation tell a somewhat less dramatic story, but most economists agree that Americans aren’t saving enough and haven’t been for years.

Even the most privileged Americans say they’re not saving enough, the survey found. Nearly seven-in-ten adults who identify themselves as upper or upper-middle class say they aren’t saving enough, a belief shared by only slightly larger proportions of middle class (75%) and lower class Americans (82%).

A similar relationship is seen between income levels and savings anxiety. Predictably, the most affluent are the least concerned about the amount they save. But what is striking in the survey is the pervasiveness of the self-acknowledged savings deficit at every income level from the relatively well-to-do to the lowest income stratum.

Americans Worry About SavingFully six-in-ten adults (61%) with family incomes of $150,000 or more say they aren’t saving enough money for the future. Among those earning between $100,000 and $150,000 a year, the proportion soars to 79% and stays roughly at that level among income groups farther down the scale. For example, 78% of those earning $75,000 to $100,000 worry they aren’t saving enough, as do 81% of families with incomes between $50,000 and $75,000. Even among those with family incomes of less than $20,000, the proportion stands at 76%.

A somewhat different measure tells the same story. The survey asked respondents which of the following phrases best describes their financial circumstances: living comfortably, have a little extra left over when they pay their expenses; are just breaking even, or are unable to pay their bills. Among those who say they “live comfortably,” nearly two-thirds report they should be saving more — a figure that swells to more than eight-in-ten among those one step down who said they were able pay their bills with a “little left over for extras”.

Minorities are somewhat more likely than whites to say they aren’t saving enough. Blacks in particular say they should be saving more (84%), compared with whites (74%) or Hispanics (78%) — a relationship that persists even after differences in income are taken into account. For example, fully 84% blacks with family incomes of less than $50,000 say they don’t save enough, compared with 77% of whites and 80% of Hispanics in the same income range. At the same time, more than nine-in-10 blacks (87%) earning $50,000 or more say they aren’t saving enough, compared with 76% of whites and 79% of Hispanics in this earnings group. Even when the focus is sharpened to look only at those earning between $30,000 and $50,000, the pattern is apparent even though the sample of African Americans is small: blacks are significantly more likely than whites (92% vs. 77%) to worry about saving.

The people in this survey who are doing best, relatively speaking, on the savings shortfall front are senior citizens. Only a narrow majority (54%) of those ages 65 and older say they aren’t saving enough, while more than a third (36%) of seniors say they are saving enough. This may be because they are in a phase of life when it is more normal to consume past savings (or draw on retirement benefits) than to accumulate additional savings. It may also be because seniors generally have lower living expenses than do younger adults.

One other demographic group that does relatively well on this question are college graduates. Three-in-ten (31%) say they save enough, compared with 19% of those with just a high school degree. Some of these college grads, no doubt, took Econ 101.

Saving and Investing: An Economic Note

It’s technical true that Americans are saving little or nothing for a rainy day: Federal data suggest Americans save less than 1% of their incomes. But we may not be as big spendthrifts as this figure suggests. That’s because the national savings rate does not include capital gains on stocks, bond, mutual funds, real estate or other investments. Government data show that personal wealth increased significantly between 1992 and 2004 — the same period during which the savings rate was in steep decline. These increases in wealth were driven by the soaring stock market and housing price appreciation. With rising wealth, Americans may have substituted capital gains for savings, a reflection of what economists refer to as the “wealth effect.”1 The problem, economists say, is that even when these other investments are considered, Americans still fall short of what they likely will need to live comfortably in later life. And the stock, bond and housing markets can go down as well as up — as many people currently trying to sell their houses are learning.

  1. Marquis, Milt. “What’s Behind the Low U.S. Personal Savings Rate?” FRBSF Letter, No. 2002-09, March 29, 2002.