Are the Signs of Improvement Sufficient?

The most recent Financial Security Index published by Bankrate is showing a slight improvement on previous ones. It is an Index that monitors in numerical terms consumer replies to questions about savings, job security and debt and how the respondents feel about their circumstances. The rise is little more than 1% with the numerical representation rising from 101.5 to 103. It reflects the fact that unemployment is now down to 4.9% from a recession high in double figures and wages are on the slight increase. Public confidence has risen as a result.

The downside is that there is no sign that people are making more effort to save towards an emergency fund. The percentage of people that have more credit card debt than savings has dropped slightly but it is still a small majority, 52% down from 58%. While the number of Americans who are happy to announce they have no credit card debt has risen to 21%, they admit at the same time that none has savings either.

Age and Income

There are marked differences amongst different age groups and income levels. Those under the age of 30 are certainly in the best shape. They seem to have grasped the importance of saving as well as the dangers of credit card debt; high interest applied at the end of every month. They are the ones who saw the years of recession without necessarily being directly affected themselves but they have learnt the lesson without having to feel the pain.

The group that are performing the best are those who have already retired, often described as the ‘’baby boomers’’ born in the years after World War II.

The Middle Groups

The problem is in between and for those in late middle age it can certainly spell potential problems. If that group is divided into the under 50s and over 50s, there is little difference in one aspect. They are likely to have credit card debt and indeed, a second similarity, they are unlikely to have a significant emergency fund.

Those below 50 are likely to have the expenses of raising children, paying a mortgage on a property whose value may well be rising again but which lost value during the recession and generally finding their money is tight because of household expenses. The problem of over 50s that have not lead a sensible financial life is that their employment prospects are often poor.

Within these age groups there was further analysis within income groups. Those earning more than $75,000 are twice as likely to have an emergency fund that could pay off their credit card debt if necessary than those on less than $30,000. The latter actually have little debt because life has been meeting regular bills without unnecessary expenditure on a card so take help from installment loans for bad credit

This recent survey was conducted among 1000 respondents and accepts that there will be a plus or minus error, similar to opinion polls that will become ever more important in the USA as the year continues and the Presidential Election approaches. The news is generally good with people feeling happier about the future than they did previously.

Reality

Reality is more important than perception come the crunch. Reality suggests that there are a couple of generations short of retirement that have not managed to stay in control of their financial affairs. Those owning real estate should be creating an asset that can help when retirement looms large but if that means selling up and using the money to fund retirement the lifestyle changes will be more than not having to get up in the morning to go to work. Somewhere new to live is the first of many changes.

Retirement Savings

The problem that many are facing, even if they have an asset to sell, is that they do not have sufficient retirement savings and those above the age of 50 are running out of time to build up a fund that will be sufficient to guarantee a comfortable retirement. People can expect to live longer if life expectancy statistics are to be believed yet that in itself requires an even larger fund. The Social Security System can support retirement but the benefits are not really sufficient to fund life in itself.

As more are claiming benefits from the Social Security System and fewer are paying in the whole System is facing trouble unless Congress can agree to extra funding. It is estimated that by the mid-2030s there will have to be a reduction in benefits of up to 25% in order for it to continue. When benefits are nothing special at present, imagine what impact a 25% reduction would have!