Tuesday, June 24, 2014—Oxford Economics held its US Savings Forum, entitled “A Penny Saved” at the Grand Hyatt, located in Washington, D.C., to address the problem of personal savings in the nation. With the large baby boomer generation entering retirement, questions regarding the sustainability of the ways in which American consumers save are becoming more and more public. Since the recession, rates of savings have begun to once again decrease, and, according to Oxford Economics, are projected to decrease even more in the next twenty years. This trend will not only leave retirees dependent on government support, but will also burden tax payers and weigh heavy on the U.S. economy as a whole. The forum was broken down into three parts, summarized below.
Opening Address: Higher Saving is Good for Households and the Economy
The first discussion of the forum was delivered by Adrian Cooper, CEO of Oxford Economics, and focused on the research conducted by the global advising group on U.S. saving trends. According to the research, among even the wealthiest households in the nation, 13.6% are at risk of undersaving for retirement. This percentage becomes even greater for lower income groups, reaching 83.2% for the lowest income quartile. Echoing this is the savings gap among income levels, which is estimated to be about 0.2% for households in the highest income quartile, and 21.2% for the lowest. These figures indicate that in order to support themselves in retirement, the wealthiest individuals need to save 0.2% of their current disposable incomes, while individuals with the lowest incomes need to save 21.2%. For families whose limited incomes are already spread thin, putting funds away for retirement may seem like an unattainable luxury. It is for this reason that there is a demand for the private sector to work hand in hand with public officials to develop attainable savings plans for households that may not have access to such financial planning through employers.
The View from Capitol Hill
The second session of the forum hosted Representatives Richard Neal (D-MA) and Tom Reed (R-NY), who discussed the potential benefits of public savings policies as a way of alleviating the burden of retirement for Americans. A major concern voiced by the representatives was the ominous end of social security, projected to be bankrupt by 2033. According to Rep. Neal, “The reality is that for those under 40 years old, they will be in charge of their own savings. For this reason we need to increase incentives and ensure that employers set up retirement plans.” Considering many citizens retire with social security as their sole source of savings, the notion of a nation without the public program is disconcerting. Citizens should educate themselves, and quickly, to learn how to save, what to save, and where to save.
A major part of our culture is what many refer to as the “American Consumer” culture, in which citizens spend and spend with little regard for future prospects. It is the Superman effect, reflected by imprudence which led to the 2008 housing crash. Saving participation rates are currently low, and it is suggested that it is due to the lack of awareness and financial education among the younger generations. In order to move away from this, there is also a level of personal responsibility that needs to be acknowledged. While policymakers and employers can work to offer a wider group of people automatic savings programs, it is on the individual to responsibly consume and plan for their future.
The final part of the forum included a panel discussion for which representatives from AARP, LPL Financial, Oxford Economics, Putnam Investments, and The Aspen Institute, were present. Among many topics, the panelists faced questions regarding income inequality, social security reforms, ways to make progress despite the stalemate within Congress, and next steps to take. Regarding questions of progress in Congress, panelists agreed the process requires patience, as well as the need for bills to be basic. Robert Moore, President of LPL Financial stated, “[O]pportunities for bipartisanship is a good place to start. There should not be a huge amount of divisive issues that involve legacy and some level of anticipation… There is an underlying level of foundation that is absolutely the right thing to do.”
Another point widely agreed upon by panel members was the need for a universal Individual Retirement Account (IRA) program (), so people are not left depending on social security and have the opportunity to begin saving early on.
The forum concluded with a final comment from Mr. Cooper of Oxford Economics. “People want to save. The key thing is to make it easy for them.”