By Quentin Fottrell, MarketWatch
Some of these people are not like the others.
The median American household currently holds just $11,700 in savings, according to a new analysis of Federal Reserve and Federal Deposit Insurance Corp. data by personal-finance site Magnify Money . Median balances (the midpoint value) are lower than the average savings rates. The top 1% of households in the U.S. by income have a median savings of $1.1 million across a variety of saving accounts. The bottom 20% by income have no savings accounts and the second lowest 20% income earners have just $26,450 saved.
The average savings in retirement, money market deposit, checking and savings and certificate of deposit accounts are skewed by higher earners with more money. The top 1% of households have an average of $2.5 million in accounts, while the bottom 20% of households have an average of $8,870 saved. To put that in context: The average household has $277,670 in retirement accounts and $4,830 in savings accounts, while the median household only has $72,840 in retirement accounts and $32,130 in savings accounts.
Stagnant wages, student debt, soaring house prices and rising credit-card debt have not helped people save. “Lots of families are living paycheck to paycheck and struggling to save even a little,” said Caroline Ratcliffe, a senior fellow at the Urban Institute, a nonprofit policy group based in Washington, D.C. “ Limited savings isn’t only an issue for low-income families. Quite a few middle- and high-income families have no savings cushion to fall back on. One in five middle-income families and one in 10 high-income families have no retirement savings.”
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So what households save the most? “Wealthier households comprise most of them, but less-well heeled households can have healthy levels of savings as well,” the report concluded. Of those households that have managed to save more than the national savings average, 59% are among the top 20% of income earners. But many less well-off families have also manage to save money in these kinds of accounts: Approximately 41% of above average savers are in the bottom 80% of income, the report said.
“Low-income people can and do to save, particularly when provided with incentives,” Ratcliffe said. Peer pressure helps: People who realize they’re spending more than their families, friends and colleagues—those who are of similar ages, incomes, locations and credit scores—will actually cut back on their spending, research shows. The most common advice is to start saving early and often to benefit from compound interest, which adds interest to both the capital and the interest already earned. (Here are 101 simple ways to save more .)
Very few of the 126 million U.S. households covered in the latest data are average. “As of 2016, about 78% of households had at least one of the following: a savings account, a retirement savings account, a money market deposit account or certificates of deposit,” it said. The bad news: Just over half of Americans own stocks, a Gallup report recently concluded . That includes 401(k) plans, shares in an equity mutual fund and/or an IRA account. Two-thirds of Americans do not even participate in or have access to a 401(k) plan, according to the U.S. Census Bureau.
There is also wide disparity in saving, based on age and income, and whether you look at the average or median (midpoint), MagnifyMoney added. Millennial households have an average $24,190 in savings, but half of millennials has less than $2,430 saved. Generation X households have an average $125,560 saved, but half has less than $15,780 in savings, checking or retirement accounts. Baby boomers and older have an average $274,910 saved, but again half that cohort has less than $24,280 saved.
The poorest Americans fare the worst. Some 50.8 million households or 43% of households can’t afford a basic monthly budget for housing, food, transportation, child care, health care and a monthly smartphone bill, according to an analysis of U.S. government data released earlier this year by the United Way Alice Project, a nonprofit based in Cedar Knolls, N.J. “For too long, the magnitude of financial instability in this country has been understated,” said John Franklin, chief executive of the United Way Alice Project.
The United Way Alice Project uses standardized measurements to calculate the “bare bones” household budget in each county in each state. It maintains that the federal poverty level — currently $25,100 for a family of four — doesn’t accurately illustrate the number of people living in poverty because it doesn’t take into account the dramatically different costs of living across the U.S. “It is morally unacceptable and economically unsustainable for our country to have so many hard-working families living paycheck to paycheck,” he said.
The project says Alice (“asset limited, income constrained, employed”) workers are the forgotten people: Child care workers, home health aides and retail workers in low-paying jobs and have difficulty saving money and are one paycheck away from the street. In 2017, 44% of people in the U.S. said they could not cover an unexpected $400 emergency expense or would rely on borrowing or selling something to do so, down from 46% the year before, according to a separate report released last year by the U.S. Federal Reserve.
Some Americans are, indeed, spending less, but hoarding that money in their checking accounts. People had the least amount of money in their checking accounts in 2007, when times were good just before the Great Recession. In fact, they had on average less than $1,000 in their account. Today, the average checking account customer has more than $3,700 stashed away, significantly more than the median amount in checking accounts since 1991 is $2,263, according to Moebs Services, an economic-research firm in Lake Bluff, Ill.
When times are good, Americans feel confident by keeping little in checking, but when times are difficult they store money in checking accounts, pulling back on spending on retail and restaurants. Michael Moebs, economist and Chief Executive of Moebs Services, said this may be a cause for concern at a time when the Federal Reserve is raising interest rates, making it more difficult to buy a home, but creating more of an incentive to put money into savings accounts. The one obvious upside: Many investors have enjoyed gains in a 113-month bull market, the longest in history.