Time to panic on economy? Apparently not, Americans say

Maybe Americans did learn a few things from the economic collapse of 2008. An interview with an executive of Fidelity suggests so, anyway.

People are saving money. Maybe.

Perhaps that’s not good for a consumption economy in the eyes of some economists and politicians, but it seems like a pretty smart thing to do with the economy teetering again and even economic bigshots saying the R word.

In an interview today, John Sweeney, Fidelity’s executive vice president of retirement and investing strategies for personal and workplace investments, says more money is being put into the stock market than is being taken out.

The urge to save seems particularly strong among millennials.

First of all, he said, Americans are saving 2 percent more of their income than they have in the past. Second, the job market has stabilized and incomes are starting to creep up, leaving investors with more money to put in the stock market or bonds. Lastly, he believes people are taking more control over their retirement investments.

“You have the baby boomers, who when they reach 50 can catch up contributions to their retirement savings because of a raise or a bonus payment,” he said. Fidelity is also seeing millennials put more money to work. The company’s Retirement Savings Assessment study found in 2015 millennials were saving 7.5 percent of their salaries each month, up from the 5.8 percent they were putting away in 2013.

Driving the increased savings rate among this group, Sweeney said, are expectations they will live longer lives and that today’s “gig” economy will mean they will have more employers in their lifetime, though not necessarily more employee-funded retirement savings.

Despite the indication that Americans are saving more, the idea isn’t what it once was. As late as May 1975, it peaked at about 17 percent of income.

Even if they’re saving more — a debatable point — it’s generally agreed Americans are not saving enough.

The financial planning site MAINST, for example, says more than a third of Americans are on the edge.

New statistics show just 37% of Americans say they could cover an emergency expense — something around $1,000 — such as a car repair or emergency room visit, and about 30% said they would pay for it with credit cards or borrow it from family or friends.

Also, perhaps most surprisingly only 37% of Millennials — who are known much more as savers than their predecessors — said they would pay for such expenses from savings.

With banks paying next to nothing, many Americans are sending the money to the stock market — good in the long run, maybe, but a quick way to lose money in the short term, especially with MarketWatch saying today that when it comes to the market crash “we ain’t seen nothing yet.”

  • MrE85

    I’m saving more today than I ever have in my life. I have to, or die young. Saving more sounded better.

  • jon

    I feel like newscut posted about how unrealistic millennials plans for retirement are….

    Now they are saving more money on average than the rest of the country…

    I feel like this is a moment when statistics can be made to say whatever we want them to say….

  • John

    I wonder how the millenial savings arc follows previous generations.

    I think most people save less when they’re young, even though that’s the best thing you can do for your long term. There are a couple good (and a couple not so good) reasons for this.

    1) They are buying things that they need to get out on their own. Cars, dishes, furniture, etc. Older people tend to have this stuff already.
    2) They are making less than they will be later – it’s tough to save when you’re making less.
    3) They’re paying off investments they’ve made toward their future – college, for example.
    4) Kids are super expensive when they’re young. You can complain about diapers or food or clothes, but DAYCARE!

    Not so good:
    1) young people believe they have forever to go before they retire. That definitely helps justify saving less. (I think there was a NewsCut blog on this a while back)
    2) I think they’re still more infatuated with shiny objects. Phones, computers, tvs, etc. have a powerful draw for the young. Marketers clearly know this.

    My little brother told me that most people don’t start saving for retirement until they’re 40. I wonder if that still holds for millenials.

    • jon

      From the article linked in the newscut post I mentioned below:
      “Only 26 percent of people under 30 own stocks, according to a BankRate.com survey.”

      But, I don’t know how that compares to Boomers when they were under 30 (though talking to boomers at my workplace who have yet to retire (sampling basis) it seems like it might be reasonable.)

      Though one has to wonder if the survey mentioned that most retirement plans put together for people their age includes some portion of stocks… So many people who sign up for retirement plans (or are automatically signed up) and don’t worry about it for the next 30 years, might not realize they own stock via that plan.

      • John

        Before 30, I think I owned stock through my 401K, and some (bad investment) that I got through the employee purchase plan at my previous job.

        But, I come from a slightly different place than most people when it comes to starting a job after school. I was in graduate school full time for 6 years after college. So, I started with a really high salary, compared to most people when they finish school, and was used to living on nothing. I was also older than most people when they finish college, because of the six extra years. I plugged in as much as I could to my 401K, because I was still making tons more than I was when I was a student. I still do that.

  • Gary F

    Trying to instill into my 20 year old son the concept of long term saving. I made a deal with him that I would match every dollar he puts into a ROTH IRA until he’s on his own. Many funds have a $50 a month minimum if you direct deposit.

    Live within your means people. Years ago when my son was young, we made the decision to have my wife stay at home instead of paying daycare. It wasn’t easy and we lived on the cheap. A great learning experience that got me through some very tough times in my life.

  • From one of the links above:

    How to calculate your personal saving rate

    To figure out your own personal saving rate, add up the following:

    Your take-home income for the month, including money you diverted to retirement accounts

    Your employer’s contribution to your retirement accounts

    Any interest or dividends

    Rental income

    Government benefits such as Social Security or unemployment insurance

    Any other income

    Then add up the money you didn’t spend. Include:

    Money you’ve put into savings accounts

    Income you’ve put into retirement accounts, such as an IRA or your employer’s 401(k) plan

    Cash on hand, such as money in your checking account

    Any other unspent funds

    Divide your total unspent funds by your total income, then multiply by 100 to get your personal saving rate.

  • Mike

    I roughly save 20 percent of my earnings for retirement/rainy days. I have done it since the day I started working out of college at 22. I am now almost 35 so I am not sure what generation that makes me? I started it because A: I didn’t want to work forever B: I didn’t want to rely on anyone to pay my way. I am excited to put more money into this ‘down’ market.

  • Ben Chorn

    “The urge to save seems particularly strong among millennials.”

    I don’t know too many millennials that have a lot of money to save with their student loan debts hanging over their heads (and wallets).