American workers find it difficult to save for retirement
because their distant financial needs tend to take a
backseat to more immediate economic concerns,
even if they have their day-to-day finances under
control or are financially literate, according to a study
by the Center for Retirement Research at Boston
In the issue titled: "Are Americans of All Ages and
Income Levels Shortsighted About Their Finances?"
researchers Steven A. Sass and Jorge D. Ramos-Mercado analyzed the results of a FINRA Investor
Education Foundation survey to determine how
Americans balance the need for long-term saving with
their current financial concerns. The survey sample
included 9,473 households in which the main
respondent was between the ages of 25 and 60.
To examine the question of whether the financial
assessments of workers at all income levels are
shortsighted, the study created three age groups (25-34, 35-50, and 50-60) and divided each age group
into terciles (three groups) based on household
income, adjusted for household size.
The study looked at the respondents' answers to
questions about how satisfied they are with their
personal financial condition, and about the extent to
which they are able to meet specific day-to-day and
distant financial needs.
The indicators used for day-to-day problems were
"difficulty covering expenses," "heavy debt burdens,"
"unemployment," and "inability to access $2,000;"
while the indicators used for distant problems were
"no retirement plan," "no life insurance," "no medical
insurance," "mortgage underwater," "not saving for
college," and "concern about repaying student loans."
Financial problems varied more by income
Not surprisingly, the analysis showed that the
incidence of financial problems varied much more by
income than it did by age, as deficiencies were much
more prevalent in lower- than in higher-income
For example, the findings indicated that 80% of
households in the bottom income tercile, but only 33%
of households in the top income tercile, reported that
they were having difficulties covering expenses.
However, the results also showed that among
respondents of all income levels and age groups,
having problems with day-to-day expenses was
associated with large statistically significant
reductions in financial satisfaction, whereas the
relationship between financial satisfaction and distant
problems was much more muted. Among the distant
problems, only not saving for college and not having
medical insurance were associated with statistically
significant reductions in satisfaction in all three age
The findings further indicated that the relationships
between financial assessments and specific
deficiencies varied much less by income than they did
by age, with people of different ages having different
For example, the inability to access $2,000 and the
inability to repay college loans were associated with
much larger reductions in satisfaction at younger
ages, whereas having heavy debt burdens and an
underwater mortgage were associated with greater
reductions in satisfaction at middle and older ages.
Financial planning matters
The major exception to this pattern was in the area of
retirement planning: the results indicated that there
was no relationship between having no retirement
plan and financial satisfaction among workers in any
age group, and that having no retirement plan was
associated with a statistically significant reduction in
financial satisfaction among respondents in the top
income tercile only.
Sass and Ramos-Mercado concluded that Americans
of all ages and income levels appear to be
shortsighted about their finances. The authors
therefore recommended that steps be taken to make
it easy and automatic for households to save enough
to secure a basic level of financial well-being in
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