Soft landing? Hard landing? Crash landing? As Americans closely watch economic indicators for any hint of the direction the economy is heading, a survey by Intuit's (NASDAQ: INTU) Quicken family of products reveals that Americans seem ill-prepared for an economic slowdown. In fact, the survey indicates that around 30% of Americans could only sustain themselves financially for a few months in the event of job loss; that same number of Americans don't even contribute to a pre-tax retirement program, or even know how much they need to retire.
"While it may be understandable for 27% of people under age 25 to not know how much money they will need for retirement, the survey shows that the percentage skyrockets with age. With retirement just around the corner, 55% of those 65 and over still don't know how much they will need to maintain their lifestyle after they stop working," said Baie Netzer, investments editor for Quicken.com. "Today's economic volatility should be a wake up call to consumers that they need to be more diligent with their savings and more efficient with their spending."
No Rainy Day Fund
While experts recommend keeping at least six months worth of expenses on hand, the survey found that over 30% of Americans carry less than half of that - leaving themselves vulnerable should an economic slowdown and reduced corporate profits result in increasing layoffs. Younger workers, ages 18-24, and households earning less than $25,000 annually struggle the most with savings, averaging a mere three months reserve.
The survey also showed a correlation between household savings and the age of children in the house. Families with children under 12 saw their average savings drop from 6.0 months to 5.0. As the children grew, became eligible to find part-time jobs and began saving for college tuition, household savings rates increased back up to 5.5 months.
The Golden Years - Not so Golden?
As poor savings habits compound, the survey reveals that millions of people nationwide will face a rude awakening when they find themselves unable to comfortably retire. Nearly 30% of full-time employees do not contribute to a qualified, tax-deferred retirement savings plan, in essence forfeiting the opportunity to reduce their tax burden and ignoring free money from potential employer contributions. Despite having longer life expectancies, a lower percentage of women contribute to these plans than do men.
This lack of savings is symbolic of a larger problem - Americans have no idea how much they will need to live on once they stop working. More than 35% of all respondents do not know how much they need to retire, a one-percent increase from the 2000 Quicken fiscal literacy survey. The overwhelming majority who did offer estimates of what they need to retire came in too low. For example, median estimates for families earning more than $35,000 per year were 44% below their expected needs based upon the current rule of thumb that retirees can expect to spend 60-80% of their pre-retirement salary per retirement year.
Most Americans Suffer from Poor Credit Management
Compounding this lack of retirement planning is poor credit management. Almost 40% of all Americans have never checked their credit history, leaving themselves open to credit abuse and reporting errors. When you consider that almost half of all Americans carry at least $1,000 in debt, the higher interest rates these errors cause can add up to costly sums over the long haul. Additionally, errors on credit reports can drive up mortgage and car loan premiums and limit access to credit cards.
The Check is in the Mail
The study also found that despite tremendous advances in Internet-based technology that streamlines the bill payment process, 84% of those surveyed still pay their bills using traditional paper methods. More surprisingly, in an era when most people claim to be pressed for time, almost 30% of respondents still pay their bills in person despite current technology that enables them to review and pay bills in a matter of seconds.
The study also found that the two coasts are polar opposites in more than just geography. Residents in the Northeast had the highest average savings rate (6.3 months), put more thought into their retirement savings plans, and contributed the highest percentage of their salary to a pre-tax retirement plan (6%). Residents of the western part of the country had more trouble predicting how much money they would need for retirement, contributed the least on average to retirement plans (5%), stored only five months of savings, and carried the highest amount of debt ($2,460 per household).
The second annual Quicken Fiscal Literacy Survey was conducted by Roper Starch Worldwide, which polled a random sample of 1,009 Americans, ages 18+, from December 7-10, 2000. The overall margin of error is +/- 3 percentage points. A full copy of the study's results may be found at http://www.quicken.com/fiscalsurvey/.