CU Data

Soak up the Sun, Sing in the Rain

Help members save for a rainy day.

July 28, 2014
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Rain RR

Misty mornings. Gentle spring rains. Torrential downpours.

You’ve likely heard the adage that it is important to “set something aside for a rainy day,” and that advance preparation for unexpected financial hardships in the form of savings can prevent dire consequences.

We also know, however, that savings accounts and plans are important even when it is not “raining cats and dogs.”

Consumers often must plan ahead to meet pricey personal goals like obtaining a college degree, buying a home or car, and funding a comfortable retirement.

Savings, then, can also stave off the rain—and make for bright days as consumers achieve life ambitions.

Cloudless horizons. Sunshine.

This week, get your feet wet and dive into research findings on consumer savings trends and sentiment.

Do your members need galoshes or sunscreen?

‘Into each life some rain must fall.’–Henry Wadsworth Longfellow

Americans Continue to Enjoy Saving More Than Spending,” proclaims Gallup, but there’s a catch, as “this trend is not necessarily indicative of actual behavior.”

Sixty-two percent of survey respondents say they like to save more than spend, compared to 34% who are admitted spenders.

Personal consumption, however, has risen along with savings preferences. Although increased spending is indicative of economic improvements, “if the increases are occurring out of necessity, not desire, and Americans take on more debt or deplete their savings, the picture may not be quite as rosy.”

How much are we saving, then? The personal savings rate in May 2014, according to economic data from the St. Louis Federal Reserve Bank, is 4.8%. See the interesting changing trend data which reveals the consumer savings rate in May 1975 was 17%, versus 7.5% in May 1987 and 2% in July 2005.

Concern regarding Americans’ savings habits are revealed in a recent Bankrate survey  that says “about a quarter of consumers don’t have an emergency cash reserve.” That figure is relatively unchanged since 2011 when Bankrate began tracking this statistic.

However, “many wish they could boost their savings levels, with those who report feeling less comfortable about their savings today outnumbering those who are more comfortable by nearly two to one.”

Spending hasn’t necessarily been frivolous as “Americans actively paid down their debt and reduced new borrowing following the financial crisis.”

Notes an expert, “It’s difficult for people to make progress against multiple goals: saving for college, a house, retirement, paying off debt… It’s a balance.”

‘One can find so many pains when the rain is falling,’–John Steinbeck

Further evidence of consumers’ hopes to stash cash, despite the challenges of saving, is found in “Personal Savings Index Shows Increased Savings Interest, Effort, and Effectiveness in First Four Months of 2014.” 

Here, “scores on savings interest, effort, and effectiveness in September (2013) and May (2014) are virtually identical, but substantially above those of January (2014)” notes Americasaves.org.

Nonetheless, in all three terms, the interest, effort, and effectiveness in savings was “consistent and predictable,” but “not all those with interest in saving make the effort, and not all those who make the effort are successful.”

Can some of the savings challenges for consumers be attributed to lack of information or understanding of personal finances? The “NFCC Annual Financial Literacy Survey Reveals Gaps in Knowledge and Execution of Basic Personal Finance Skills,” and reveals that 61% of U.S. adults do not have a budget.

Furthermore, the “most worrisome” aspects of personal finance for respondents are split between lack of rainy day savings and insufficient funds for retirement (both 16%). Again, reports of expenditures rise as those who spent less declined from 2009’s high of 57% to 2014’s low of 29%.

“This suggests that, although consumers are uncomfortable with their lack of savings, they may have nonetheless continually increased their year-over-year spending.”

Find more consumer savings dismay as “Americans Tap Retirement Savings and Regret It,” according to insurancenewsnet.com.

“Of the percentage of Americans surveyed, 44% who borrowed from their retirement plans lived to regret their decision.” And, 43% of those dipping into retirement savings have done so more than once.

The top reasons for withdrawals from retirement funds:

  • Paying off debt (46%);
  • Emergency expenditures (35%);
  • Home purchase or renovation (26%);
  • Bill payment as a result of job loss (24%);
  • Further education (20%); and
  • Weddings, vacations, or similar events (15%).

‘A day without sunshine is like, you know, night.’—Steve Martin

What Would You Never Give Up to Save for a Down Payment?” Trulia asks hopeful house buyers.

The answer: 61% will not give up a car, 19% are committed to cable television, 13% prefer to go on vacation, and 7% are dedicated to morning coffee purchases.

To finance that home down payment, then, 63% will tap savings, 38% will seek increased income, 22% will look for government aid, 11% will withdraw from investments, 11% will ask friends and family, and 8% will take from their 401(k).

Learn “How America Saves for College” in a compelling Sallie Mae report. “Families’ overall savings are up 7% from last year,” with total average savings of $115,604 compared to $107,724 of last year.

Although retirement comprises 53% of these savings dollars, college funding is still a priority, and about 10% of savings funds are designated for further education. Those who save for school have amassed on average $15,346; a 30% increase over last year’s average of $11,781.

Other college saving observations of note:

  • 45% of parents use general savings accounts for college funds;
  • 57% of savers “use multiple vehicles” to save;
  • 29% use 529 plans; and
  • 13% use Coverdell Education Savings Accounts.

Among families who do not save—half of which have kids under age 18—“the primary reason… is that they don’t have the money (58%).”

Consumers know reserve funds are important for many reasons, come rain or shine, and want to save.

Realizing savings goals may be challenging due to a shortage of funds, competing savings objectives, lack of understanding of budgets, or various other priorities.

Said Helen Keller, “Keep your face to the sun and you cannot see a shadow.”

Shine on your members—and help them sing in the rain.

LORA BRAY is an information research analyst for CUNA’s economics and statistics department.

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