Despite economic growth and declining unemployment, new research suggests that cash-strapped Americans are failing to save for retirement, struggling with student loan debt and facing decreasing financial literacy.
“The State of U.S. Financial Capability,” a national comprehensive study –from the FINRA Investor Education Foundation, finds that younger Americans, those with lower incomes, African-Americans and those without a college degree are facing the toughest financial struggles.
“While we’ve seen improvements in key measures of financial capability over the years, the 2018 findings suggest we have hit a plateau – and that not all Americans have recovered at the same rate,” notes Gerri Walsh, President of the FINRA Foundation.
The nationwide survey of more than 27,000 respondents is conducted every three years and is one of the most comprehensive financial capability studies in the U.S., measuring key indicators of financial capability and evaluating how these indicators vary with underlying demographic, behavioral and financial literacy characteristics.
Planning for Retirement
Despite the considerable improvement in Americans’ ability to make ends meet relative to 2009, the percentages of those who have planned for retirement or have a retirement account have not shifted much over the past four waves of the study. Noting that the act of planning for retirement is a strong positive indicator of retirement wealth, the report shows that just 41% of respondents have tried to figure out how much they need to save for retirement. This level has improved just slightly from 37% in 2009.
The survey further asks whether respondents have a retirement plan through an employer or an individual retirement account they set up on their own. More than half of all non-retired respondents (58%) have some type of retirement account, either employer-based (for example, 401(k) or pension) or independent (for example, IRA). This level essentially has not change since 2009, when the level was 57%.
A gender gap for retirement preparedness may also be widening in a way that favors men, according to the study. An examination of the differences between women and men in preparing for retirement finds that relative to 2009, the percentages of women who have tried to calculate their retirement savings needs or who have a retirement account have not changed, whereas both of these measures have improved somewhat for men.
The study further emphasizes that gender differences in preparing for retirement “pale in comparison to differences by household income.” Only 19% of those with incomes under $25,000 have tried to plan for retirement, compared to 62% of those with $75,000 or more income. Similarly, the likelihood to have a retirement account increases dramatically with income, such that only a small minority of respondents with less than $25,000 income have a retirement account (19%) while the clear majority of respondents with $75,000 or more income have one (87%).
Among the study’s other findings:
- Lack of emergency savings. Despite improvements in the ability to make ends meet, nearly half of Americans have not set aside money to cover expenses for three months.
- Decline in financial literacy. Only 34% of respondents could answer at least four of five basic financial literacy questions on topics such as mortgages, interest rates, inflation and risk, down from 42% in 2009. The study notes that this decline in scores appears most pronounced among respondents under age 34, who have had little exposure to high interest rates or inflation as adults.
- Financial education matters. Respondents who have participated in a substantial amount of financial education are more likely to save and less likely to overdraw their checking accounts. Nearly half of respondents (49%) who have received more than 10 hours of financial education report spending less than they earn, compared with 36% of those people who received less than 10 hours.
- High education costs. Among respondents with student loans, nearly half (47%) wish they had chosen a less expensive college. Among those with student debt, a similar percentage (48%) is concerned they will not be able to pay off their loans, and many did not fully understand what they were getting into when they got their loans, the survey shows.
Walsh suggests that with the economy seemingly not working for all, further research is needed to “… explore how fintech innovations, quality financial education offerings and the rise of the gig economy may impact the financial decisions and behaviors of millions of Americans.”
