What’s Behind Our Skyrocketing Savings Rates

Americans are putting more in the bank, but the trend might not be as impressive as it looks.

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On average, Americans are saving 400 percent more than they were six years ago, according to a new analysis from the Financial Services Roundtable. Sounds like a lot, right? A closer look behind that rising savings rate shows that while it’s a striking trend, it’s not quite as impressive as it first looks.

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First of all, it’s easy to improve upon a tiny number. Since we were saving so little in the mid-2000s, dipping as low as 1.4 percent in 2005, a fourfold jump means that we are now saving close to 6 percent. That’s good, but nothing that would impress our grandparents. The savings rate between 1950 and 1970 hovered around 8 percent, with several years of hitting the double-digits. Then, starting in the mid-1980s, as the economy thrived and consumer culture took over (hello, Madonna’s Material Girl), the savings rate dropped like a rock.

When the recession started in late 2007, the savings rate began creeping up again, reaching 5.8 percent in 2010. The Financial Services Roundtable reports that recessions and savings rate move in sync; perhaps the uncertainty and stress of tough economic times leads us to all to hunker down and figure out a way to put more in the bank. Call it the rainy day syndrome: When the clouds are right in front of us, we can’t pretend it’s always going to be sunny. (See How to Save One-Third of Your Income.)

In fact, the Roundtable insists that even our retirement accounts are fuller than one might think from watching all the scary news reports about poverty-stricken seniors. The total amount held in retirement plan accounts increased more than 670 percent—almost sevenfold!—between 1985 and 2009. Apparently, we got the message that we need to save more for our golden years. We might also be looking at the declining pension benefits and uncertainty surrounding Social Security payouts and decide we better save as much as possible now, because no one else is doing it for us.

The Roundtable also concludes that the vast majority of Americans have more money in their 401(k)s today than they did at the market peak in October 2007. That suggests most of us are continuing to make regular contributions from our paychecks despite experiencing so much market turbulence.

Now that so many of us are ramping up our savings rates, how far should we take this trend? Is that 6 percent rate a good goal, or do we need to go even higher? If the goal is financial security, I think we need to go a lot higher—perhaps as high as 25 or 30 percent, once you factor in pre-tax retirement savings. That’s because not only do we need to fund our retirements, we also need to save for emergencies, long-term goals like home purchases, and short-term goals like vacations.

If you want to join the crowd and start saving more yourself, here are five ways to get started:

1. If you don’t currently save anything, begin with a small and manageable amount. Overcoming the initial inertia that prevents many of us from saving is often the hardest step. That’s why starting by saving just a small amount can get you on the path towards bigger savings. Nicole Mladic, a 31-year-old communications director in Chicago, couldn't afford to put away a big chunk of her salary when she was in her mid-20s, so she started saving 2 percent. A few months later, she raised it to 3 percent, then went to 4 percent, and eventually reached her goal of 10 percent. Today, her net worth is over $90,000.

2. Read up on financial and economic news. A survey by HSBC Direct found that people they call “active savers,” about 1 in 5 Americans, tend to pay attention to financial news. That might help them maintain a general awareness and savviness about money, and also teach them about basic principles such the importance of not trying to time the market, and finding accounts that don’t charge hefty fees.

[See 12 Money Mistakes Almost Everyone Makes.]

3. Save regularly, and take advantage of automated systems. Online banking makes this technique easy: Sign up for monthly transfers into a brokerage or savings account. You can also transfer funds directly from your paycheck so you never even see the money, which means you won’t miss it. Check in with your human resources department—you might be able to set up an automatic savings account through your paycheck in addition to your automatic retirement savings.

4. Try to celebrate the act of saving. This trait might sound counter-intuitive: How can anyone enjoy saving money, since doing so essentially prevents the pleasure of a purchase today? But some people—especially successful savers—naturally feel more pleasure while socking money away rather than spending it, since they know they are building financial security and they can spend it one day in the future. If you don’t naturally feel this way about saving, you can teach yourself to, by focusing on how much financial security means to you each time you add to your savings accounts.

5. Make saving a family affair. The HSBC survey found that most active savers had been saving money since they were young and they learned the value of saving from their parents. While adults today who didn’t receive those lessons can’t change their past, they can help pass on better lessons to their own children by talking about finances and family budgeting often. Doing so would put them in the minority: A Charles Schwab survey found that only 1 in 5 parents frequently talk to their teens about family budgeting and spending decisions, and just over half of parents teach their teens how to save regularly.

Do you have any tricks that helped you ramp up your own savings rate? Please share them below.

Kimberly Palmer (@alphaconsumer) is the author of the new book Generation Earn: The Young Professional's Guide to Spending, Investing, and Giving Back.