Headline writers love surveys and studies that give you reason to shake your head or be scared:
- Americans Falling Short In Saving
- Nearly 1 in 3 Americans Aren’t Saving Any Money
- Americans Are Saving Less Now Than Right After The Recession
Each of these articles reference the same survey this week from America Saves, an organization promoting saving. The results of the survey are interesting, but not really surprising. For instance, the below chart:
One would expect the lower income earners to be less able to save, but we might also expect to see the upper income earners to save more than the middle income. This survey doesn’t really see that. But given that employment is still a major issue (not just jobs, but wages) and the wealth destruction of the housing crisis, nothing in this survey is really surprising. What it doesn’t do is say what the optimal savings level is or should be.
That’s the personal finance side of saving. Then there’s the economic piece.
Personal finance evangelists will always encourage saving and for most individuals that’s the right way to do it. But the health of the economy relies on less saving sometimes. Due to low interest rates, wages and employment, and difficult lending conditions, it’s not surprising that saving is lower now than it was just after the recession. During the recession everyone was worried about having enough funds, so they saved. Now, as we get more optimistic about the economy and our own personal finance prospects, we’re more likely to dip into that savings a bit. This makes sense even if for personal finance reasons the results aren’t encouraging.
Again though, no one ever seems to offer real advice on what one should expect to be saving at various points in their life. In the absence of such guidance, I will offer mine.
What you’re saving very much depends on where you are in life. College students and young adults aren’t expected to be saving much but they should be learning how to save. The next stage in life likely involves getting established in a career and perhaps starting a family. This is when saving really starts to ramp up; at the same time it may not be as high as it could be because many have a mountain of debt to work through from school and perhaps buying a house or car. Later on in life we start to mature and look towards retirement. Savings in dollars and percentage of income should be at its highest here. And then you finally hit retirement. If you’ve done everything right, your saving should nearly stop.
That’s right, there’s a period in life when you should stop saving. In retirement you start to draw on those savings. This is often ignored when discussing these savings surveys and reports. Retirees aren’t going to be net savers. Finally, let’s think about the current population that’s reaching retirement. Baby Boomers are going to throw off any national statistics on saving. They aren’t net savers anymore. If much of the population is in retirement aggregate national savings rates will be somewhat depressed.
The only way reports on savings have any really meaning or impact, we need to break the population into age groups. We’ll surely find that each age group isn’t saving they way I laid it out above, but it’s the only way to have meaningful data, and conversations, about savings.