Why Can't Americans Save Money?

Results of the 2004 Survey of Consumer finances, released yesterday by the Federal Reserve Board, show a decline in the proportion of households that are saving money. From 59.2 percent in 2001, the proportion saving money during the past year fell to 56.1 percent in 2004. (The survey asked respondents whether their household spent more than their income, the same as their income, or less than their income during the past year. Those who spent less than their income were classified as savers.) Even more ominous given the aging of the population, the percentage of households with retirement accounts fell from 52.2 to 49.7 percent between 2001 and 2004.

This is only the latest evidence of the American struggle to save. Other research has shown participation in retirement savings plans to be woefully inadequate. An analysis by the Employee Benefit Research Institute (EBRI) reveals that a 40 percent minority of workers participate in a 401(k)-type plan or own an IRA. Another study by EBRI finds only 4.5 percent of workers made a tax-deductible contribution to an IRA in 2002, down from 6.5 percent in 1992.

The 2005 Retirement Confidence Survey finds only 25 percent of workers "very" confident in having enough money to afford a comfortable retirement. No wonder: The 52 percent majority have saved less than $25,000. Even among workers aged 45 or older, most have saved less than $50,000.

Why can't Americans save more? Many factors play a role, such as:
--The steep rise in the cost of necessities such as health insurance. Who can afford to save?
--Economic insecurity. When jobs are tenuous, saving seems like an unaffordable luxury.
--Stock market volatility. Why invest when it might vanish tomorrow?
--Low interest rates. Might as well put your money under the mattress.
--The voluntary nature of retirement savings. Why not wing it and hope for the best?

For too many Americans, their retirement savings plan appears to be a lottery ticket.