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Comprehensive Study Results Released: Why We Can't --and Won't --Save More
This entry was posted on 12/11/2007 2:29 PM and is filed under Deposits,Psychology.
WASHINGTON, December 10, 2007 /PRNewswire/ — More than half of Americans
(52%) say that they currently cannot afford to save or are saving
inadequately, according to a comprehensive survey of how Americans view
their savings adequacy, major barriers to savings, and successful
savings strategies planned and released by the Consumer Federation of
America (CFA) and Wachovia this morning.
"This survey is far and away the most extensive we've undertaken and
provides new insights into not only how Americans save but why they do
or don't," noted CFA Executive Director Stephen Brobeck. "Among other
findings, it reveals the importance of socio-psychological barriers to
saving and easy access to attractive accounts," he added.
The survey was based on 50-plus question interviews of more than
2000 representative adult Americans conducted by Opinion Research
Corporation last month (November 8-12). The margin of error was plus or
minus two percentage points.
The survey findings represent the first of several reports to be
released before next year's America Saves Week, which starts February 24.
They also serve as the basis for an America Saves-Wachovia savings
education program to be launched throughout Wachovia markets during the
Week.
"Wachovia is committed to increasing the number of Americans who are
saving. We want to provide savings advice, education and encouragement
to consumers," said Kathryn Black, SVP and Savings Director for
Wachovia.
Americans Think Other Americans Are Not Saving Enough
When asked whether they think Americans are saving adequately,
nearly four-fifths (79%) said they are not, with nearly half (47%)
saying Americans are saving "very inadequately." Among demographic
groups, the college- educated are most likely (86%) to think Americans
are saving inadequately.
Respondents are also somewhat pessimistic about the chances of most
Americans to accumulate significant wealth. When asked what percentage
of young Americans are likely to accumulate $1 million during their
lifetimes, the typical response was only 10 percent.
"Americans are pessimistic about how other Americans are saving and
how they will save in the future," noted Brobeck. "In part, this
pessimism probably reflects widespread press coverage about the
country's zero or near- zero personal savings rate," he added.
Most Americans Do Not Think They Are Saving Adequately
More than half of Americans (52%) say they are not saving
adequately. Seventeen percent say they cannot afford to save at all,
while 35 percent say they are saving but not enough to meet short- and
long-term financial needs.
Higher percentages say they have adequate savings to pay for
unexpected expenses like car repairs or emergency dental treatment
(68%) or to pay for regular household expenses for several months if
there's a job loss (58%). And more than half (53%) say they are saving
adequately for retirement. But when all short- and long-term financial
needs are considered, only 44 percent say they are saving, or have
already saved, adequately.
Predictably, the highest income group (at least $75,000) is about
twice as likely as the lowest income group (under $25,000) to say they
have saved adequately for each of the above purposes. Over one-third
(34%) of low-income Americans say they cannot afford to save at present.
The high-income group is also most likely to believe they can
accumulate $1 million during their lifetime. In fact, when asked about
the chances of accumulating this amount, the typical response among the
high-income group was 75 percent. For those with incomes under $35,000,
it was only one percent, and for those with incomes between $35,000 and
$50,000, it was only two percent. For all respondents, the typical
response was 10 percent.
"Americans are more positive about their own saving than about that
of the country as a whole, yet a majority still believe they are not
saving adequately," Black said.
Social and Psychological Factors, As Well As Economic Factors, Discourage Saving
More than 1,000 sample members, who said they are not saving
adequately or could not afford to save, were asked about factors that
made it difficult for them to save. Economic factors were cited most
frequently - large regular expenses by 72 percent, unexpected expenses
by 72 percent, low or unreliable incomes by 66 percent, and large
consumer debts by 60 percent.
But social and psychological factors were also cited as barriers to
saving. More than one-third (37%) cited "impulse spending" as making it
difficult for them to save. And when asked about other non-economic
factors making saving difficult, 42 percent cited "credit cards," 29
percent cited "spending to feel good," 20 percent cited "social
pressure from friends or family," 15 percent cited "trips to the mall,"
and 8 percent cited "playing the lottery or gambling."
Contrary to some thinking, higher income groups reported more
problems with impulse spending as a barrier to saving. Of the
highest-income group, 46% percent said impulse spending made it
difficult for them to save versus 32 percent for those with incomes
below $35,000.
"Not surprisingly, economic factors were cited the most frequently
as barriers to saving, yet social and psychological factors were also
noted," said Brobeck. "Any successful savings initiative should
acknowledge and try to minimize the latter," he added.
Americans Cite Understanding Interest Compounding as Essential to Successful Saving
The inadequate savers, and non-savers, also identified the most
important factors in persuading them to save more than they currently
do. They cited access to attractive savings accounts as the most
important general factor, such as a contributory retirement program
like a 401(k) (75% important, 52% very important), easy access to a
savings account paying 5% (73% important, 39% very important), and
automatic transfers from checking or payroll deposits to savings (65%
important, 36% very important).
Less important for these inadequate savers was encouragement from
one's bank or credit union, employer, and friends and family, or advice
from a financial planner or credit counselor. Between 49% and 60%
considered these factors important, and between 20% and 25% considered
them very important.
But the most surprising finding here was that when respondents were
told that "saving $200 a month for 30 years at a 5% rate would
accumulate over $300,000," 80 percent said this knowledge was important
in persuading them to save, with 62 percent saying it was very
important.
"Knowledge of the 'miracle' of interest compounding clearly can have
a significant influence in persuading Americans to save more
effectively," Black said. "So we want to work with America Saves to get
that message out to more Americans: Small amounts of savings can add up
significantly over time."
The more than 1,300 savers in the sample (those saving either
adequately or inadequately) were asked to identify their most important
effective savings strategies. Surprisingly, the largest number cited
the avoidance of credit card debt, with 92 percent saying it was
important and 82 percent saying it was very important. Moreover, the
largest number in each income and age group cited this factor.
Other successful strategies cited were: planning and monitoring
spending (93% important, 69% very important), making regular
contributions to a workplace retirement plan (80% important, 62% very
important), transferring surplus balances to savings (78% important,
40% very important), saving a portion of financial windfalls (78%
important, 45% very important), making mortgage payments to build home
equity (76% important, 64% very important), automatic transfers from
checking to savings or investments (75% important, 48% very important),
and saving loose change (65% important, 31% very important).
Young Adults Face The Toughest Savings Challenges
Young adults 18-24 years old are the most likely demographic group
to say they are not saving adequately (62% versus 52% for all
Americans).
And these young adults who are not saving adequately were far more
likely, than older Americans, to cite social and psychological factors
as important barriers to savings. Far larger percentages of young
adults, than all Americans, cited spending to feel good (54% versus
29%), social pressure from friends of family (38% versus 20%), and
trips to the mall (32% versus 15%) as factors making it difficult to
save. And over half (53%) cited impulse spending as an important reason
they had difficulty saving (compared to 37% of everyone).
Several savings strategies were relatively attractive to these
inadequate savers, especially interest compounding (91% important, 61%
very important) and encouragement from friends and family (83%
important, 50% very important).
"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," Black said.
Support Builds for America Saves Week
The America Saves-Wachovia savings education program will be
launched during America Saves Week, which begins February 24. It will
encourage and show both English- and Spanish-speaking participants how
to build their savings.
This program represents one of many savings activities by hundreds
of non- profits, governments, employers, and financial institutions
during America Saves Week, which was piloted last February with
participation from the Federal Reserve Board, Department of Defense,
Internal Revenue Service, Cooperative Extension, and United Way, among
other national organizations.
Source: Wachovia Corporation
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