POST OF THE DAY
Foolish Collective
Saving in a Nation of Spenders

Format for Printing

Format for printing

Request Reprints

Reuse/Reprint

By babyfrog
April 12, 2004

Posts selected for this feature rarely stand alone. They are usually a part of an ongoing thread, and are out of context when presented here. The material should be read in that light. How are these posts selected? Click here to find out and nominate a post yourself!

On the front page of today's (April 6, 2004) Wall Street Journal, there is an article about marketing to senior citizens. What really struck me from the article was the table titled "Gray Means Green" in the article. I've grabbed the data off the table and formatted it "Fool Friendly", below:

Median net worth for U.S. households by age as of 2000

                           With Home       Excluding
      Age                   Equity        Home Equity
      75 and older      $100,100        $19,025
      70-74                $120,000        $31,400
      65-69                $114,050        $27,588
      55-64                $112,048        $32,304
      45-54                $ 83,150        $23,525
      35-44                $ 44,275        $13,100
      34 and younger  $  7,240        $ 3,300

Source:  U.S. Census
The shape of the curve really doesn't surprise me. What shocks me are the low values of households' net worth in general. Unless pensions, annuities, IRAs, 401(k)s and other such things are not counted as part of Net Worth, those numbers are shockingly low.

I ran the numbers... If a person saved $30 a month (~$1 per day) at a 4% interest rate, for forty years (from age 25 to age 65), at the end that person would have $35,458.84. That's higher than the highest net worth (excluding home equity) median age bracket. On a dollar a day, in a 'safe' investment. Take on a little risk and shoot for a 7% return, and that end result turns into a whopping $78,744.40. Invest that buck a day in 'the market' at a 10% long run return, and the forty year balance turns into $189,722.39. Something must be terribly wrong if the savings rates are that low, and have been that low for that long.

Maybe things were different, thirty or forty years ago. Maybe people believed that Social Security would last... Maybe people believed that their pensions were sacred. Maybe - but that can't explain all of the low numbers, otherwise the people in the younger demographic groups would have higher net worths as the flaws in the social net (Social Security, PBGC, etc.) have been uncovered and it became more clear that individuals would need to be in charge of their own retirement savings goals. And it certainly doesn't explain the under 34 age bracket and its household, non-home-equity net worth of about one year's Roth IRA contribution. I'm embarrassed for my age group!

In any event, once I got past the shock, the numbers made me thankful. Quite thankful. Thankful that I found the Fool, learned about money, learned about saving, and learned about investing. I would not like to be 65 years old, facing the choice of either a dog-food style retirement or the possibility of working until I keel over, and have less than $35,000 in savings. Fortunately, thanks to learning the Time Value of Money in our twenties and making the early sacrifices necessary to use that to our advantage, the chances are quite slim that our golden years will be spent on an IAMS diet.

Unfortunately, there are apparently plenty of other Americans out there who haven't yet gotten Foolish. It's unfortunate, because old-age poverty is practically totally preventable. Sure, there may always be a few unfortunate souls who slip through the cracks, but the medians should be higher - much higher. On a dollar saved a day, they should be higher! So how do we get the word out? How do we create a nation of Fools? Because the numbers right now scare me. With the governmental 'safety nets' stretching to their limits and in danger of collapsing under the weight of their own largesse, and with the abysmally low savings rate in this country, the situation is not sustainable. Something has got to change, and it has got to change soon.

So let's figure out a way to turn the country into a nation of Fools!

-Chuck

Become a Complete Fool
Join the best community on the web! Becoming a full member of the Fool Community is easy, takes just a minute, and is very inexpensive.