Personal Saving Reaches Highest Level In 2+ Years

By Linda Koco
InsuranceNewsNet

Personal saving in February reached its largest level since December 2012, more than two years ago, according to new numbers out from the Bureau of Economic Analysis (BEA).

The bureau’s monthly report shows the February 2015 level for personal saving at $768.6 billion. That’s up by nearly 5.5 percent from $728.7 billion in January (which was up, in turn, by 13.5 percent from December 2014’s level of $641.8 billion).

Personal saving refers to personal income less the sum of personal outlays and personal current taxes, according to the BEA.

The February saving level is also up by more than 20 percent from $638.6 billion one year earlier in February 2014, the BEA figures indicate.

As upbeat as all that sounds, February’s personal saving metric is no match for that of December 2012. According to BEA, the personal saving level in that December was $1.373 trillion. This is the highest level that U.S. personal saving has reached in the four-year period starting in January 2011.

The lowest point over the same four-plus years occurred in December 2013. That’s when the personal saving level dropped to just $523.2 billion, according to a BEA chart on monthly levels.

Another metric that BEA reports is the U.S. personal saving rate. This refers to personal saving as a percentage of disposable personal income. In February, this rate was 5.8 percent, up from 5.5 percent in January and 5.0 percent in February 2014.

However, the personal saving rate, like the personal saving level, reached its four-year high in December 2012, when it was 10.5 percent. 

Watching the uptick

Insurance and financial experts will probably want to keep an eye on this year’s early uptick in personal saving, since it represents two consecutive months of increase after many months of virtual flat-lining. Will those increases form a growing pool of funds that some consumers may want to reposition into other assets?

Uncertainty about economic trends has caused some consumers to hesitate on repositioning, advisors have told InsuranceNewsNet. These consumers have been waiting to see improvements in post-recession financial stressors such as unemployment, unpaid credit balances, bankruptcy or forced moves into lower-cost housing before deciding. Could those improvements now be here?

Even if the 2015 figures prove to be the start of solid savings gains that multiply in subsequent months, customer demand for repositioning may lag a while longer. 

A key reason is that personal saving will take some time to scale back up to, say, the high of December 2012.

In addition, a string of jarring reports on consumer savings trends in early 2015 shows that many households continue to be hard pressed to save, even when they want to save more. For example:

• Obstacles. More than 37 percent of Americans said their biggest financial resolution for 2015 is saving money, according to a GOBankingRates poll. However, nearly a quarter are nowhere near confident they'll hit that goal, the firm said. A finding of interest to the retirement industry is that consumers identified their top long-term goal as saving for retirement. (Building an emergency fund was their top short-term goal.) But they noted they face obstacles to achieving their goals. The biggest obstacle? Insufficient income, according to 40 percent of the group.  The findings are based on a survey of 1,000 U.S. adults in late 2014.
• Middle market struggle. Households in the middle market are on the same wavelength. In a 2014 LIMRA survey, these consumers said their top two financial goals were saving enough for retirement and building an emergency fund. However, 57 percent admitted they do not regularly save, according to LIMRA. Half said they would need to borrow to cover a $5,000 financial emergency, and one-third said they have non-mortgage debt of $25,000 or more.
• Retirement savings not main priority. Although Americans lead the world in retirement planning (75 percent report saving for retirement compared to the international average of 62 percent), 81 percent admit that saving for retirement is not their main priority, according to global bank HSBC. Three-fourths (76 percent) said they’ve seen retirement savings impacted by significant events such as buying a home, unemployment, divorce or illness. For many, paying off a mortgage or other debts is the biggest barrier to saving (57 percent among Americans; 46 percent globally). A third (33 percent) said they either have stopped or reduced saving for their children’s education to prioritize debt repayments. This is based on a global survey in the second half of 2014; the U.S. responses were from 1,000 working age and retired adults.
• Running out of money. More than a third of all households (36 percent) told researchers for the Center for Financial Services Innovation that they frequently or occasionally run out of money before the end of the month. In addition, 43 percent said they struggle to keep up with bills and credit payments; 28 percent said they had less than $1,000 in liquid savings, and 30 percent said they could make ends meet for only three months or less in event of a sudden drop in income. Less than half (45 percent) expressed confidence in their ability to meet their long-term goals for financial security, the center said. This was based on responses from more than 7,100 U.S. adults in 2014.

Some positives

On a more positive note, several researchers commented in their reports that improvements are possible and that some consumers have certain behaviors that support savings goals.

For example, the Center for Financial Services Innovation found that people who have a “planned savings habit” are four times more likely to be in a financially healthy segment than those who do not have such a habit.

The HSBC researchers noted that as the U.S. continues to recover from the global economic downturn, reporting “41 percent of pre-retirees feel more optimistic about their financial prospects than they did one year ago.”

"Most Americans want to be better at saving money,” Casey Bond, managing editor at GOBankingRates, observed upon release of the firm’s savings results. “They just don't know how to do that.”

Consumers will need some assistance, LIMRA concluded. As much as they want to achieve their financial goals, American consumers are saying they need help in order to save more, the researcher said.  

InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at [email protected].

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Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].