The Secret to Saving More

Motivation might be a key part of boosting low-income saving rates

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 A young woman reaches for cash in a green wallet.

Ready to start saving more to prepare for the holidays and New Year’s goals? America Saves, a national campaign aimed at getting Americans to save more money, has some suggestions for you.

According to a new, 15-part checklist released this week, the most important steps toward creating a solid nest egg include making a plan with specific goals, avoiding high-interest debt and saving at least 5 percent of your income. The campaign also recommends making savings deposits automatic through bank accounts and contributing regularly to retirement accounts.

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In a survey of more than 1,000 people conducted in September, America Saves found that young people between ages 18 and 35 were particularly interested in saving, a fact the nonprofit attributes partly to the lingering effects of the Great Recession as well as concerns over the stability of Social Security. That younger group also had the highest rating for effort made to save.

“We can only speculate that the late, Great Recession especially influenced young people, and that they’re skeptical about receiving Social Security benefits,” said Stephen Brobeck, executive director of the Consumer Federation of America, in a conference call on the survey results. He also noted that the median income of young adults has fallen, which further underscores their financial insecurity and need to save.

The survey also found that higher-income individuals reported the highest levels of interest in savings, as well as the greatest amount of effort made to save. The group attributes that finding to the fact that it’s likely easier for higher-income individuals to find ways to tuck money away. Unsurprisingly, higher-income individuals also reported being able to save more effectively than lower-income individuals. The highest levels of interest, effort and effectiveness of saving were found among respondents earning over $100,000 a year.

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“Those with the greatest ability to save also make the greatest effort to save,” Brobeck said on the call. He added that the findings illustrate the pessimism among low-income Americans and the pervasive belief that it is too difficult to save. “That’s why it’s just as important to help motivate people to save and to provide opportunities to do so, as it is to inform them how to save effectively,” he added.

America Saves wants to convince those in the lower-income brackets, including those earning under $50,000 or even $25,000 a year, to find ways to save more. That way, they can avoid credit card debt or high-interest rate payday loans and build up greater financial security. “Moderate, and not just low-income families, did not believe they could save $1,000. One of our principal goals is to persuade people that they have the ability to save,” Brobeck says.

Believing that they can save is one of the first steps toward helping low-income families do so, Brobeck added. Even starting with just accumulating loose change, which can add up to $100 a year or more, can be a good start, he says. “We know stories where that’s how people started to save. It wasn’t the amount of dollars that was important, it was seeing that they could save.”

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While several hundred dollars might not sound like significant savings, it can actually make a big difference for those in the low- and middle-income brackets, Brobeck noted. Indeed, a 2008 study from the Consumer Federation of America found that having at least $500 in savings was correlated with a slew of other positive financial factors, including less concern over paying monthly bills, the ability to keep up with the mortgage or rent and general concern over personal finances. At the time, the researchers wrote, “The survey data suggest that this figure [$500], or something close to it, may represent a threshold that distinguishes both attitudes and behaviors.”

“For people on the financial edge, saving $100, or $200, or $500 can make all the difference in the world,” Brobeck said, before adding that the most important financial step for low-income individuals is to increase their incomes.