PR - Constant Spending Drives Lack of Savings: Survey

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 yesterday.

"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.

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.

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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.

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).

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).