Even High-Income Young Save Less

Younger Americans with larger incomes and college education still save less when compared with older Americans with smaller incomes, according to a report that examines a Federal Reserve survey of U.S. household wealth.

More than a quarter of all American households have net assets of less than $10,000, said a report released Monday by the Consumer Federation of America and the Credit Union National Assn.

In general, these Americans with little or negative financial assets tended to be young, have low or moderate incomes and rent, not own, their homes.

The group also tends to have different financial attitudes than other Americans, Consumer Federation of America Executive Director Stephen Browbeck said.

They tend to plan for the next few months rather than for at least five years and to spend more than their incomes, he said.

“They not only cannot cover major emergency expenditures without borrowing, they probably cannot afford to buy a house, pay for an education or start a business,” Browbeck said.

In contrast, about 42% of American households had net assets of at least $100,000, according to the 1998 Federal Reserve Survey of Consumer Finances.

Almost 5% of American households had net assets of at least $1million.

The report used the term “wealth-poor” to define affluence and poverty not just by income, but by wealth, or assets, as well.

It found that wealth-poor Americans divided into two major groups, the under-35 households with moderate incomes and the older households with smaller salaries.

But the majority of the group who had negative assets, or debt, were under 35. They also had an annual income of at least $25,000 and at minimum some college education.

In contrast the Americans who had small savings tended to be black or Latino households made up of people over 35 who had less education and smaller incomes.

The younger group, who had average debt of about $15,000, also were more inclined to take financial risk when saving or investing, and more likely to spend more than their income, compared with the second group, the report said.

The data show the need to teach young people more about saving, said Dan Mica, chief executive of the Credit Union National Assn.

“We need to redirect thinking, to educate young people particularly on the miracle of compound interest,” Mica said.

“They can indeed, with just a little bit of savings, have the funds to educate children, buy a home, to retire.”

But economist Keith Leggett said the information should not be viewed as alarming.

The report is consistent with life-cycle models of economic theory, he said.

People under 35 are borrowing against future earnings, Leggett said.

“A great number of people under 35, they’ve gone to college, they probably have student loans and they’re trying to set up their households,” he said.

“A lot of people wondered if the baby boomers were ever going to save,” said the American Bankers Assn. senior economist. “What we now see is baby boomers are savers.”