$Stock*Shop*Charts*News*Option$

[EZ2]

5 reasons Americans are not saving money

MARKETWATCH 11:53 AM ET 10/9/2015

Near-zero interest rates is only reason people are not planning for tomorrow

Americans are having trouble saving.

Two recent studies carried out by independent pollsters say that more than 60% of adults have no emergency savings or less than $1,000 in their savings account (http://www.marketwatch.com/story/most-americans-have-less-than-1000-in- savings-2015-10-06). And among those who had savings prior to 2008, 57% said they'd used some or all of it in the Great Recession, according to a U.S. Federal Reserve survey of over 4,000 adults released last year. Those surveys don't include automatic savings vehicles like a 401(k) or an IRA, but financial experts say consumers should try (if they can afford it) to make automatic payments into a savings account too.

Personal savings rates as a percentage of disposable income dropped from 11% in December 2012 to 4.6% in August 2015, according to the Bureau of Economic Analysis (https://research.stlouisfed.org/fred2/series/PSAVERT), and have hovered at 5% since then. "It's possible that the gains in net worth are going to high-income households, which could be consistent with the lack of savings for middle-income households," says Mark Perry, a professor of finance and business economics at the University of Michigan-Flint. One way to keep your savings rates stable: Set-up automatic deposits and save part of your tax refund, says Signe-Mary McKernan, an economist at the Urban Institute, a think tank.

Here are 5 reasons why so many American savings accounts are bare:

You get the same interest from your piggy bank

The U.S. Federal Reserve kept interest rates unchanged at its last meeting in September (http://www.marketwatch.com/ story/federal-reserve-keeps-interest-rates-unchanged-but-forecasts-hike-this-year-2015-09-17), but some economists expect a slight increase during its scheduled October or December meeting. "There's no question that there is little incentive for most potential small savers to do so, even if they have some discretionary income," says Patrick O'Keefe, director of economic research at CohnReznick, an accounting and advisory firm. "Indeed, they face real negative rates." That said, not all savings accounts are created equally (https://www.nerdwallet.com/rates/savings-account/). The more you invest, the more interest for your savings you are likely to get. Still, that rate will likely be barely over 1% in most cases.

Bank fees can penalize the poorest Americans

Banks have made little progress since 2008 to encourage savings accounts among lower-income households and the young, says Sheldon Garon, a professor of history at Princeton University and author of "Beyond Our Means: Why America Spends While the World Saves (http://press.princeton.edu/titles/9512.html)."; And it's more than a problem of near-zero interest rates on savings account. "Banks remain rather predatory," Garon says. "They don't feel they can make profits on small accounts, so they continue to charge significant fees for accounts, establish minimum balances, and overdraft fees, all of which drive lower-income and young people away from having a bank account." (A spokesman for the American Bankers Association says it carried out a survey that found 61% of customers pay no bank fees (http://www.aba.com/Press/Pages/ 081815SurveyonBankCosts.aspx).)

Living for today and forgetting about tomorrow

The lack of savings is partly due to a failure of the imagination, says Andrew Meadows, a San Francisco-based producer of "Broken Eggs (http://brokeneggsfilm.com/),"; a documentary about retirement, and vice president of brand and culture at Ubiquity Retirement + Savings. "When making our film I found that people have a really hard time imagining future issues," he says. "If I were to tell you that your car was going to break down and you would need $3,000, you could probably imagine that, but people can't envision what their lives will be like at retirement age. People can't even imagine what their life will be like next week. When it comes to putting money aside, Meadows adds, many people say, " I'll do it at the end of the year when I get that bonus."

Official inflation rate versus "personal" inflation rate

The U.S. inflation rate is virtually flat, but wages are also effectively stagnant, says Greg McBride, Bankrate's chief financial analyst at personal finance site Bankrate.com, despite a significant increase in employment over the last five years. "Most people roll their eyes" when they hear that their salary will go up by 3% this year (http:// www.marketwatch.com/story/here-is-the-pay-raise-you-can-expect-next-year-2015-08-11), he says. "Everyone's personal rate of inflation is a lot different and 3% doesn't give people much, if any, additional buying power." He distinguishes the official inflation rate from most Americans' "personal rate of inflation," which is impacted by student debt, whether they have benefits with their job, a child in college or even if they drive a car, he says.

Aggressive lending keeps people in long-term debt

Although credit is not as generous as it was before 2008, many credit card companies and auto financing companies still aggressively target consumers, Garon says. "The system still generally does not want people to pay their bills in full, but rather to keep them in debt." Earlier this year, the Consumer Financial Protection Bureau, a government agency, proposed rules that would require providers of short-term, high interest payday loans to ensure consumers can repay those loans and provide affordable repayment options. Lenders, for instance, would not be allowed to keep consumers in debt on short-term loans for more than 90 days in a 12-month period (http://www.marketwatch.com/story/ youre-paying-off-debt-wrong-2014-08-13).

Also see: One-third of couples go into debt for their wedding day (http://www.marketwatch.com/story/one-third-of- couples-go-into-debt-for-their-wedding-day-2015-09-29)

-Quentin Fottrell; 415-439-6400; [e-mail]

Subscribe to WSJ: http://online.wsj.com?mod=djnwires


(END) Dow Jones Newswires
10-09-151153ET
Copyright (c) 2015 Dow Jones & Company, Inc.