Increasing America’s Savings Rate

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New Research Uncovers a Path to Behavioral Change

America’s savings rate has fallen from 8% in the 1960s to 2% today, resulting in dangerously low retirement savings for more than half the population. While most attempts to encourage greater savings have yielded disappointing results, new quantitative research has revealed a simple but effective approach.

“We looked at spending patterns before and after downloading a mobile app that lets users see their spending,” said Yaron Levi of UCLA, the principal researcher on the study. “Preliminary results indicate that after downloading the app, users modified their behavior and spent less – 15.7% less.”

  •     After downloading the mobile app, consumers checked their finances an additional ten times a month.
  •     Decreased spending was concentrated in discretionary items, such as dining out (19.2% lower).

“This has far-reaching implications for families and for the country,” said Bill Harris, CEO of Personal Capital, whose financial app was used in the study. “Over the past forty years, we’ve moved from pensions to 401ks as the primary retirement savings vehicle – shifting responsibility from companies to individuals. Yet we haven’t shown them how to save. As people turn to digital lifestyles, this is an opportunity to put real-time information to productive use.”

Underfunded retirement savings is a looming financial crisis.

  •     40% of all American families have no retirement assets, and another 40% have less than one year of income saved.
  •     More than 45% of all employees do not currently participate in a workplace retirement plan.
  •     The total U.S. retirement savings deficit is estimated at over $10 trillion – almost the size of the U.S. gross domestic product.

“Increasing the U.S. savings rate is the obvious answer to this retirement crisis. The question is how to do it,” said UCLA Prof. Shlomo Benartzi, author of Save More Tomorrow, the definitive text on the use of behavioral techniques to increase the effectiveness of retirement savings programs. “While still at an early stage, the work Yaron and I been doing shows the incredible potential to combine digital technology and behavioral insights to improve savings behavior.”

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About Personal Capital: Personal Capital is a next generation of financial advisor. The company melds technology with professional advisors to help households with complex financial lives manage their wealth. Over half a million Americans now use Personal Capital to track over $100 billion in accounts and Personal Capital manages over $800 million in assets for investment clients. Personal Capital’s free apps are available for iPhone, iPad and Android.

Disclaimer: Personal Capital Advisors is a SEC registered investment advisor. Any reference to the advisory services refers to Personal Capital Advisors. SEC Registration does not imply a certain level of skill or training.

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Catha Mullen
Personal Capital
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