Families across the United States are financially diverse – just like the way they save. But overall, more savings than ever before, whether for emergency spending or retirement.
The U.S. Federal Reserve’s recently released Consumer Finances Survey 2019 takes a look back at family finances over 30 years to see how savings practices have changed. The data reveals that Americans have better access to financial assets such as bank and investment accounts, but it also shows that large disparities persist over who owns those assets and their value. While the data period does not cover the current recession, it may provide clues as to the direction savings habits may take when the coronavirus pandemic and related economic effects recede.
Why American Families Save
From 1989 to 2019, retirement and liquidity – having cash on hand – were in turn the number one reason American families saved, according to the Survey of Consumer Finances. But since 2010, liquidity has been the main driver.
When unforeseen bills, unemployment or a pandemic strike, having accessible cash makes management easier and provides peace of mind. A common guide is to build over time and ultimately have three to six months of spending on hand in a emergency fund. And while only 63% of Americans can cover an unexpected $ 400 bill, according to the Federal Reserve, the fact that that goes beyond the reasons people save indicates that the shortage of emergency cash is not due to a lack of testing.
The savings that you can access quickly in an emergency (cash flow) and the money to live on in retirement are both very important, and they are both financial goals who can grow with you.
Start by putting money aside for emergencies, whether it’s a month’s worth of living expenses or a few hundred dollars if that’s more realistic given your income and expenses. Once you’ve created an emergency fund, turn to your retirement savings, starting or increasing contributions as you can. When it looks good, get back to liquidity and avoid additional funds. This way, you can gradually increase your financial security on both fronts over time.
Access to financial assets grows, but unevenly
Over the past 30 years, the share of American families with financial assets – including money held in checking and savings accounts, CDs, stocks and bonds, retirement accounts, life insurance at cash value and above – increased significantly from 89% to 99%.
The growth in the share of those holding these assets has been most significant among groups often left behind due to poverty and / or systemic racism that has reached wealth creation and income, for example.
For example, the share of black families with financial assets increased from 64% to 98% during this 30-year period, and among Latin American families from 69% to 96%. Even single parents have seen increased access to assets – from 72% to 99% since 1989.
This growth is notable, but it does not tell the whole story. Everything these families have in their bank accounts and retirement funds is still far behind their white counterparts. In fact, the median value of financial assets for white families in 2019 is around $ 49,500, compared to $ 5,500 for black families and $ 3,000 for Latin American families. The typical asset value of single parent families, regardless of race, is $ 4,000.
It can be difficult to save and accumulate financial assets when your income is low, debt is high, you don’t have the same access to financial tools and resources as others, or if you opt out. of the traditional banking system. However, even a little saving can make a big difference – a savings account balance of just over $ 100 correlates with maintaining utilities and avoiding high-interest loans, according to research by SaverLife, a non-profit organization. non-profit that helps families save. So take what you can out of each paycheck, even if it seems like a drop in the bucket. Setting small goals like $ 200 or $ 500 will get you started and give you the peace of mind that you have a cushion available.
Pension funds hold most of the assets
The bulk of financial assets of American families – 36% of them on average – is held in retirement accounts. Thirty years ago, only 21% of financial assets were held in such accounts, slightly more than those held in transaction accounts such as checking and savings accounts.
Only 37% of American families had a retirement account in 1989, up from 50% in 2019. This growth coincides with the growth of employer retirement funds, such as 401 (k) accounts, and the replacement of pensions by 401. (k) s and private retirement accounts like IRAs.
But not everyone has the same access to these accounts. For example, only 34% of single parents, 35% of black families, and 26% of Latin American families have retirement accounts. This is compared to 57% of white families.
Additionally, the median retirement account value in 2019 differs significantly by demographics. Couples without children typically have $ 104,000 in their retirement accounts compared to $ 67,500 in couples with children accounts. Single parents with a retirement account typically have $ 30,000.
The median retirement account balances of white families with such accounts ($ 80,000) are more than double that of black ($ 35,000) or Latin families ($ 31,000).
Once you’ve created an emergency fund, it’s time to start saving for retirement. Do what you can, in the way you can. And when your financial situation allows it, do more.
If your employer offers a 401 (k) match, contribute enough to take advantage of all the free money. If not, you are on your own to develop and fund a retirement account. Start somewhere: Setting aside a small portion of each paycheck in an IRA will give you something to build on for years to come.
Whatever your goals, saving is a trip of a lifetime. Your ability to accumulate financial assets such as cash and retirement savings depends on factors under your immediate control, such as budgeting, and those over which you may have less to say, such as how your neighborhood looks. , your education and your race affect your economic mobility. Even your ability to control your budget depends on your ability to manage in the first place, and in a time of continuous high unemployment, many Americans find it difficult to stretch every dollar. In situations like this, even the smallest steps are progress and can lay the groundwork for greater economic security both when the next bill comes due and in the future.