Debt, Education Expenses Hindering Retirement Savings Progress

In addition, about one-quarter (27%) of surveyed Americans say the main factor preventing them from saving for retirement is high day-to-day expenses.

The ninth annual America Saves Week survey has found that only two-fifths (40%) of U.S. households report good or excellent progress in “meeting their savings needs.”  

Less than half (49%) say they are saving at least 5% of their income; 52% say they are saving enough for retirement with a “desirable standard of living,” 43% report some kind of automatic saving outside of work, and 38% report they have no consumer debt.

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Responses to other questions, however, suggest that around two-thirds of Americans are making at least modest savings progress: 70% report at least some progress in meeting savings needs; 66% say they save at least some of their income; and 63 percent report “sufficient emergency savings to pay for unexpected expenses like car repairs or a doctor visit.”

More Men Than Women Report Saving Progress 

On 12 separate questions on various financial well-being indicators, men’s responses were more positive than women’s responses, with differences ranging from five to 13 percentage points.  For example, 74% of men, but only 67% of women, report they were making saving progress, and 44% of men, but only 36% of women, report good or excellent saving progress.

Similarly, 72% of men, yet only 60% of women, report they are spending less than income and saving the difference. This gender gap persisted for those saving at least 5% of income—54% of men and only 45% of women.

During a media call, Stephen Brobeck, executive director of the Consumer Federation of America and a founder of America Saves, said these gender differences were not surprising because men tend to have more income and assets than women.

NEXT: Retirement savings shortfalls

When the survey asked whether respondents were "saving enough for a retirement in which you will have a desirable standard of living," only about half of non-retired persons (52%) said "yes." That figure is down three percentage points from last year (55%) and down six percentage points from 2008 (58%).  Moreover, there was a significant gender gap: 57% for non-retired men, and 47% for non-retired women.

While these findings are discouraging, Harry Conaway, chairman of the American Savings Education Council, told reporters the positive could be that as individuals become more educated and begin planning, they grow more realistic about their retirement savings needs.

For those non-retired persons who say they are not saving enough for retirement, about one-quarter (27%) say the main factor is high day-to-day expenses, and another one-quarter (25%) say the main factor is debt and related expenses, with about half this group (12%) citing education expenses and debt.  For those younger than 45, 22% cite education expenses and debt as the main reasons for not saving enough. For those older than 45, the most cited reason (16%) after day-to-day expenses is mortgage or housing expenses.

For the first time, the annual America Saves Week survey asked for respondents’ views about participating in retirement programs. When asked the highest percentage of their salary that they would contribute to a plan offered by their employers with auto-escalation, more than four-fifths (82%) indicated they would contribute more than 3%, with 40% indicating they would save 10% or higher. 

Conaway says this suggests more employees would be open to automatic enrollment and automatic deferral escalation than retirement plan sponsors think.

Also, when asked what they would do if their employer did not offer a retirement plan and they were automatically enrolled in an IRA administered by their state government with a default annual contribution of 3%, roughly equal percentages said they would contribute less than 3% (32%), 3% (31%), and more than 3% (28%). 

NEXT: Those with a plan for saving are more successful

The survey findings reveal that those with a “savings plan with specific goals” save more successfully than those without a plan. Sixty-one percent of those with a plan for savings know their net worth, versus 33% without a plan. Eighty-five percent of those report no or reducing consumer debt, versus 64% without a plan. Eighty-four percent of those with a plan say they are spending less than income and saving the difference, versus 46% of those without a plan.

In addition, more of those with a “savings plan with specific goals” report sufficient emergency savings than those without a plan (79% vs. 46%); automatic savings outside work (60% vs. 26%); and making good or excellent savings progress (55% vs. 23%).

Income appears to be correlated with some but not all of these differences. More specifically, the financial well-being indicator gaps between those who plan and do not plan are always larger than those gaps between households with annual incomes of $25,000-$50,000, and those households with incomes above $100,000.

Brobeck said there is hope; he suggests low-income workers be encouraged to start with saving their loose change. And, he says, all households can save more with a specific plan and goals.

“The survey responses underscore how important it is for all retirement industry players and policymakers to educate employees and support key savings goals,” Conaway concluded.

The research included responses from a representative sample of 1,004 adult Americans between January 28 and 31.

More about America Saves Week, including a toolkit, can be found at http://www.americasavesweek.org/.

FINRA Turns Up Focus on the Values of a Firm

Broker/dealers urged in FINRA letter to define and strengthen their firms’ ethical business practices.

Firm culture—the attitudes that affect client interests and shape ethical considerations—has a profound impact on investor outcomes and market integrity, according to the Financial Industry Regulatory Authority (FINRA). Broker/dealers will be receiving letters that request a self-exam on the firm’s own values, as well as the practices and processes the firm uses to conduct itself.

In January, FINRA posted a letter about culture, conflicts of interest and ethics. While definitions of “firm culture” can depend on an organization’s specific definition, the self-regulatory organization explains that they use the term to refer to “explicit and implicit norms, practices, and expected behaviors that influence how firm executives, supervisors and employees make and implement decisions in the course of conducting a firm’s business.” One initiative FINRA has set for this year is formalizing its assessment of firm culture, while continuing its focus on conflicts of interest and ethics. 

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On Thursday, FINRA outlined its priority for 2016: scrutinizing firm culture at broker/dealers, stating that how they conduct business, including managing conflicts of interest, is a direct outcome of the firm’s own culture. Ethic failures put both investors and the markets at risk, not to mention the firms themselves, FINRA says in “Establishing, Communicating and Implementing Cultural Values.” Failures in these areas can impose significant harm on investors and the markets as well as firms themselves. One estimate places fines and litigation costs to firms, or their parent companies, related to cultural failures at more than $300 billion since 2010—underscoring how critical it is for firms to establish and implement their own strong cultural values. 

FINRA says it will be reviewing how firms establish, communicate and implement cultural values, and whether cultural values are guiding business conduct. The self-regulatory organization plans to meet with executive business, compliance, legal and risk management staff at broker/dealers to discuss cultural values. FINRA also wants to discuss how the firm communicates and reinforces those values directly, implicitly and through its reward system.Of particular interest: how firms measure compliance with its cultural values; what metrics, if any, are used; and how they monitor for implementation and consistent application of those values throughout the organization.

This inquiry is not an indication that FINRA has concerns about a firm’s culture or has determined that the firm violated any rules or regulations, the self-regulator says. Rather, FINRA says, “our goal is to better understand industry practices and determine whether firms are taking reasonable steps to properly establish and implement their own cultural values within the firm. Knowing firms’ practices in this area, and the challenges they face, will help FINRA develop potential guidance for the industry and determine other steps that could be taken.”

NEXT: Here’s what FINRA wants broker/dealers to share

FINRA requests firms to supply the following summaries and descriptions by March 21:

  • A summary of the key policies and processes by which the firm establishes cultural values. In the summary, include whether this is a board-level function at the broker/dealer or at the corporate parent of the firm. If it is a board-level function, describe the board’s involvement. Also, provide a description of any steps initiated or completed in the past 24 months to promote, strengthen or change the firm’s culture.
  • A description of the processes employed by executive management, business unit leaders and control functions in establishing, communicating and implementing the firm’s cultural values. Include a description of how executive management communicates, promotes and establishes a “tone from the top” as it relates to cultural values (to the extent not covered by the previous question). Include a description of the firm’s approach to ensure that its cultural values are adopted and applied by middle management.
  • A description of how the firm assesses and measures the impact of cultural values (to the extent assessments and measures exist) and whether they have made a difference at the firm in achieving desired behaviors. Provide a summary of the policy statements, procedures, mission statements or other related documents that reflect the firm’s assessments and measures.
  • What processes the firm uses to identify policy breaches, including the types of reports or other documents the firm relies on, in determining whether a breach of its cultural values has occurred. The summary should focus on those activities the firm considers directly related to reinforcing its culture.
  • How the firm addresses cultural value policy or process breaches, once they are discovered. How are policy or process breaches addressed? What is the escalation process to surface and resolve such breaches?
  • The firm's policies and processes, to identify and address subcultures in the firm that may depart from or undermine the cultural values articulated by the board and senior management.
  • The firm's compensation practices and how they reinforce the firm’s cultural values.
  • The cultural value criteria used to determine promotions, compensation or other rewards. Describe opportunities for promotion to the managing director or equivalent level available to personnel of the compliance, legal, risk and internal audit functions.

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