Americans are struggling to rebuild their savings after the recession, according to the Consumer Federation of America’s seventh annual national survey. Almost two-thirds said they were making fair progress at best.
“This year’s survey shows that the savings glass can be viewed as half full or half empty,” Stephen Brobeck, executive director of the Consumer Federation of America and a founder of America Saves, said in a teleconference announcing the survey.
Although many are struggling to save, most are able to meet their day-to-day financial obligations, according to the report. More than two-thirds said they were spending less than they make and saving the rest, up from 65% in 2013. Furthermore, 64% said they had enough emergency savings and 76% were either reducing their debt or already debt free.
However, “a third of households are barely saving,” Brobeck said. “They’re spending less than their income and have emergency savings, but many don’t think they’re saving enough for an adequate retirement.”
Brobeck said there were two factors explaining differences in savings progress.
“The most important, predictably, is income. The higher one’s income, the more likely one is saving adequately, but what’s especially noteworthy is there are sharp differences in saving adequacy within the middle class.”
Americans with annual household incomes between $25,000 and $50,000 were much less likely to report good savings habits than those in higher income groups. For example, 69% of those in the lowest income group were spending less than they made and saving the difference, compared with 82% of those with between $50,000 and $75,000 and 81% of those with more than $75,000.
While more than three-quarters of the lowest income group said they were reducing their debt or had none, they lagged the higher income groups: 88% and 91%, respectively. The percentage of lower-middle-class Americans with a sufficient emergency fund lagged the higher income groups by 20 points at 63%.
“While planning is correlated with income, the relationship is far from perfect. Many low-income households plan and many upper-income households don’t,” Brobeck said.
The second factor is simple planning. In fact, the report found that there are fewer people in 2014 who have savings plans with specific goals or spending plans that include savings goals than last year.
“We believe that the main factor here is the continuing struggle of many middle-class families to rebuild their finances as the recovery from the Great Recession began, especially as unemployment rates started declining at the end of 2010,” Brobeck said. “More than three years later, many families are still struggling to do so.”
Although unemployment has fallen from its 2012 high of 8.3%, it’s still high at 6.6% as of January. Underemployment is high as well and real wages are stagnant, according to CFA.
Dallas Salisbury, president and CEO of the Employee Benefit Research Institute, stressed the importance of planning.
“When it comes to saving, we know that having a plan makes a big difference,” he said on the call. He referred to data from the Employee Benefit Research Institute’s 2013 Retirement Confidence Survey that shows a link between financial planning and confidence. “Those who report having done a [retirement] calculation are twice as likely — twice as likely — as those who have not to say they are very confident.”
America Saves Week, an initiative launched in 2001 to encourage Americans to save, is from Feb. 24 to March 1. It is intended to encourage Americans to save more by following three steps, Salisbury said.
“First is to set a goal,” he said. “Decide what you want to achieve: retirement, a child’s education, emergency savings. Secondly, make a plan. Determine the steps you need to take to achieve your goal. That planning step, we find, is essential. And finally, save automatically. Whether that’s the ability to take advantage of automatic payroll deduction at work or the need to contact a financial institution, many that are participating in ASW, to find out which product is suitable for your goal and setting up automatic savings.”
Salisbury had suggestions for ways to make it easier for individuals to save.
“Employers can play a vital role by encouraging and making it easier to participate in savings and retirement programs, through payroll deduction, automatic enrollment and the opportunity to support automatic contribution increases,” he said.
Banks and credit unions could promote automatic transfers from checking to savings and investment accounts, and nonprofits could promote savings programs like individual development accounts and the myRA account proposed by President Barack Obama in his State of the Union speech.