How Much Is America Really Saving?

In his essay “The Way to Wealth,” Benjamin Franklin wrote, “If you would be wealthy, think of saving as well as getting.” In other words, earning is a key ingredient for financial wellness—but even the highest salary in the world is worthless without a big dose of saving.

It’s worth asking how Americans are doing with their savings, in both rainy-day funds and retirement accounts. Even though Americans have been busy earning money lately, they have some work to do in the savings department.

For Many, Emergency Savings Are Dangerously Low

The U.S. Census Bureau reports that real median household income rose 5.2% from 2014 to 2015. (1) So income is moving in the right direction! Despite this lift, a 2016 study from Bankrate shows over a quarter of Americans have no emergency savings at all. And nearly half (46%) of Americans fall short of the three months’ worth of living expenses that most financial experts define as the bare minimum for a healthy emergency fund. (2)

We all know how important savings are for surviving tough times. When the need for a major vehicle repair comes up or a big medical bill hits, many lack the funds to pay in cash. And as consumer debt continues to keep pace with rising income, it’s clear that making more money isn’t enough to produce positive change in terms of savings.

How does a sagging or empty emergency fund affect Americans’ daily life? Think about the employees in your own business. You can assume about half would lack the ability to get through the above scenarios without borrowing. And about a fourth don’t have a dime set aside for emergencies! Without a substantial amount saved up against life’s inevitable emergencies, they’re in a vulnerable position.

The mix of high debt and low savings does a number on morale. The 2016 U.S. Bank Possibility Index reported half of Americans said their greatest concern was paying off debt, and every three out of five are worried about saving for the unexpected. (3)

Retirement Planning Is Far From Universal

Emergency funds are only one end of the savings spectrum. Once your employees have managed to save three-to-six months’ worth of living expenses in a savings account and eliminate consumer debt, it’s also imperative they become aggressive in saving for retirement. How are Americans doing at preparing for life after the workforce?

The same U.S. Bank study shows fewer than half (45%) have a retirement account, and less than a third have any additional investments. Significantly, nearly three out of five reported they do not even budget their spending on a regular basis. (4)

Looking at those who do have a retirement account in place, the 2017 Vanguard “How America Saves” report reveals more than 94 million Americans are covered by a defined contribution plan. In 2016, the average Vanguard account balance was $96,495, with the median balance amounting to $24,713. But average account balances held fast from 2015, and the median balances actually fell by 6%. This change is partly explained by the increase in automatic enrollment, a benefit more employers are using every year that leads to a greater number of employees saving. (5)

Although the rising number of employees investing each year is encouraging, the optimism must be balanced against the reality of loans against the accounts. Vanguard reports 16% of its participants had a loan outstanding in 2016, the same proportion as the previous year. (6) These loans are a reflection of the same lack of emergency savings outlined above, and are a dangerous deterrent to the benefits of compound savings which play such a pivotal part in adequate retirement growth over an entire career.

For True and Lasting Financial Wellness, Put Savings in Its Place

For most Americans, achieving real and long-lasting financial wellness will require some behavior change because the facts are neither new nor unknown to the vast majority of workers. Although many live counter to the facts they know to be true, there’s no way around the reality that savings must be had in order to feel any measure of security—today and in the long run.

For a typical employee, the necessary change means finding a financial wellness program that inspires them to put their money where it belongs at the right time and in the right order. They need to feel the hope that comes from getting some of the right pieces in place and a sense that things are getting better. Once they feel their money moving in the right direction, retirement begins to seem like a realistic possibility.

This attitude begins when you show them the link between high debt and low savings. Next, share with them the power of an emergency fund, and demonstrate how many Americans have already saved up a big one (44% have three-to-six months’ worth of living expenses socked away). (7)

A debt-free, financially prepared worker is in a far better position to invest at a high rate in your 401(k) plan. Look for a financial wellness program that puts these steps in the right order for maximum benefit to both your team and your entire company.

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