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Americans' savings rate far behind their parents rate

by Jim Sloan

Americans aren't saving as much as their parents did, although they think they are doing a pretty good job.

According to the website financial-planning.com, a recent survey showed that nearly half of those surveyed believed they are saving more than their parents.

That sentiment flies in the face of a recent Bureau of Economic Analysis report showing that our personal savings rate was only 3.48 percent over the past 10 years, far below the 9.63 percent that was going into savings accounts from 1971-81.

Making other plans to boost savings

Experts from financial-planning.com said the meager interest rates being paid for certificates of deposit and other low-risk savings instruments requires that people today explore other avenues for putting money into high-yield savings accounts, including retirement savings accounts. When even the best certificate of deposit pays less than 2 percent, the incentive for putting money into low-risk savings accounts is low.

Some suggestions:

  • Since interest rates are so low, consider increasing the percentage of your salary that you are saving to make up for the meager returns on your savings accounts.
  • Search for the best savings accounts, including online savings accounts.
  • Commit a percentage of your paycheck to your savings accounts.
  • Although even the best CD rates are still low, consider "laddering" your certificates of deposit so all your savings are not tied up in a CD with a very low interest rate. Laddering is the process of staggering the terms for the CDs you invest in, so a portion of your savings matures each year so you can take advantage if interest rates go up.

Declining housing prices

Americans' view of savings unquestionably shifted when housing prices skyrocketed in 2005, as many viewed their retirement savings as being the equity they held in their homes.

But housing prices have taken a steep dive in recent years, and Americans who felt their homes were serving as interest-bearing savings accounts have become disillusioned by the declining home values and the lost wealth. According to the Associated Press, a Gallup poll released in 2010 found that 20 percent of non-retired Americans believed their home equity was a major source of their retirement, a 33 percent drop in the percentage since 2007, when 30 percent felt their home equity was a major retirement savings account.

And that percentage may continue to decline. A recent Standard & Poors/Case-Shiller index of 20 metropolitan areas found that home prices in regions across the country hit their lowest level since the housing market began to collapse in 2006. A billowing number of foreclosures and short sales have driven housing prices downward, and tighter lending requirements have made it difficult for many potential buyers to get mortgage loans to purchase homes.

Despite the increase in the savings rate from 3.8 percent to 5.8 percent in 2010, many consumers today remain far behind the savings rate their parents maintained back when interest rates on savings accounts, money market accounts and other savings instruments were much higher.

About one in three consumers surveyed admitted they weren't saving as much as their parents, and about 22 percent said they were saving about as much as their parents did, the San Francisco Chronicle reported.

Disclaimer:This content is not provided or commissioned by American Express. Opinions expressed here are author's alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.

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