Building up a savings fund is key to financial independence, experts say – but it’s not easy to do, particularly with inflation still at higher-than-normal rates.
To get a better understanding of how the economy and other factors affect American household savings, the research team at MarketWatch Guides analyzed historical savings data against the background of the contemporary economic landscape. We also consulted with the following experts:
- Charles Higgins, associate professor of finance at Loyola Marymount University
- Chang (Anna) Liu, assistant professor of finance at Ball State University
- Mandy Harrelson, program champion of finance at Auburn University
- Jin Peng, assistant professor of finance at the University of Colorado at Colorado Springs
Key Findings
Americans saved 3.6% of their disposable income in February 2024, half a percentage point less than they had saved a month prior.
The number of households living paycheck-to-paycheck increased to 62% in January 2024, up from the previous year.
About 43% of women feel financially secure, and less than half think they’ll be prepared for retirement. However, nearly 60% of men are secure in their finances, and 61% feel financially prepared for retirement.
Retirement savings averaged $333,940 in 2022, more than one-and-a-half times the savings Americans had set aside for retirement over two decades earlier.
Average American Savings
Americans saved only 3.6% of their disposable personal income in February 2024, according to data from the Federal Reserve of St. Louis. That’s down from 5.3% a decade ago, and far below the average savings rates before the COVID-19 pandemic. However, the current rate is still higher than the historic low of 1.4% in July 2005.
According to Mandy Harrelson, program champion of finance at Auburn University, “ Savings habits were relatively stable for the 6-year period prior to the pandemic (ranging between 4 and 6% of disposable income). However, saving patterns peaked at 32% in April 2020 thanks to fears surfacing around COVID-19 and federal stimulus packages.” She continues, “Unfortunately, this didn’t last long as saving habits returned to pre-pandemic levels by December 2021.”
A recent MarketWatch Guides survey found that 66.2% of Americans feel they’re living paycheck-to-paycheck. The same survey found that of the 48.6% of respondents who reported being broke, 92.1% were living paycheck-to-paycheck. However, data from the Center for American Progress suggests that merely 11.5% of the population falls below the poverty line.
Average Savings Demographics
Several factors influence the average American’s saving habits, from age and education level to race, ethnicity, and gender. Unsurprisingly, older Americans have the highest levels of savings, as well as people with a college degree.
Average Savings by Age
Adults of retirement age (65 to 74) held the most assets in 2022, with an average valuation of $1,870,850, according to data from the Federal Reserve. Assets for those younger than 35 averaged only $290,180. However, all age groups experienced increased asset values from 2019 to 2022.
Average Savings by Race and Ethnicity
Savings among all races and ethnicities increased from 2019 to 2022, according to Federal Reserve data. Average assets among white, non-Hispanic Americans were highest in 2022 at $1,498,480, continuing a historical upward trend since 1989 when the figure stood at $609,500. Americans who selected “Other” for ethnicity had the second-highest asset value at $1,003,110. Assets of Hispanics totaled $315,240, while assets among Black Americans were an average of $297,260.
Average Savings by Education Level
In 2022, Americans with a college degree held three times more value in assets than those who attended but did not graduate college, according to the Fed data. Eighty-eight percent of Americans who completed four or more years of college stated they were doing OK or better financially.
Of those with less than a high school diploma, less than half said they were OK financially. Although only 5% of adults with a post-secondary education had difficulty paying bills within the past 12 months, over 20% of those without a high school diploma encountered the same concern.
Average Savings by Gender
According to the Northwestern Mutual 2023 Planning & Progress Study, men feel more financially secure (59%) and have greater confidence in their financial preparedness when it comes time to retire (61%). Only 43% of women feel financially secure, and 44% think they’ll be financially ready for retirement. Paying down debt remains a priority for older female generations, while their younger counterparts work to save money.
Average Retirement Savings
American families had amassed an average of $333,940 for retirement in 2022, over one-and-a-half times the amount saved for retirement in 2001 ($175,600), according to Federal Reserve data. However, the median family’s retirement savings was much lower – $87,000, compared with $49,200 in 2001.
Both the median and average balance of retirement accounts have steadily increased since 1989 – when the median savings was $25,400 and the average savings was $87,700, adjusted for inflation. Over 54% of families had a retirement account in 2022, the highest rate of ownership since the Fed began tracking data, and a 3.8 percentage point increase from 2019.
Despite a historical increase in family participation in saving for retirement, data from a recent MarketWatch Guides survey reflects a generational disparity in the knowledge and ownership of 401(k)s, one of many ways to prepare for retirement. Of the 88% of the population familiar with a 401(k), just over a quarter actually own one. In total, less than a fifth of Americans have a 401(k), with younger generations much less likely to save for retirement.
However, about 70% of Americans contribute to a retirement plan in some way, according to data from financial services company Empower. On average, working Americans in their 20s have saved $74,460 for retirement, with savings balances doubling in their 30s and 40s. The average retirement balance in 2023 peaked among 50-year-olds at $558,740 and fell to less than $400,000 for retirees in their 80s. Among generations, over 75% of Millennials and Gen X adults save in some form of retirement plan, compared to less than 50% of Generation Z.
Generations break down as follows, per guidelines published by the Library of Congress:
- Baby boomers: Born between 1946 and 1964, now between the ages of 60 and 78
- Gen X: Born between 1965 and 1980, now between the ages of 44 and 59.
- Millennials: Born between 1981 and 1996, now between the ages of 28 and 43.
- Gen Z: Born between 1997 and 2012, now between the ages of 12 and 27.
Average Retirement Savings by State
Americans living in Connecticut have saved the most for retirement, with an average balance of $545,754, according to Empower data. Adults in New Jersey, New Hampshire, and Alaska trail slightly behind with about $500,000 in their retirement accounts. The average retirement account in Vermont is $494,569, according to the report.
Eastern states tend to have the largest retirement savings balances. Utah residents have saved the least for retirement, with an average savings balance of $315,160. The average retirement savings balance in North Dakota, Mississippi, Oklahoma, Washington, D.C., and Arkansas totals less than $365,000. These figures don’t account for state-specific variances in cost of living and tax rates.
Why Is It Hard to Save Money?
On average, Americans in all 50 states saw an increase in income during the last half of 2023, according to data from the U.S. Bureau of Economic Analysis.
With more money flowing in, why is saving still so hard? Experts attributed it to a variety of factors, including higher costs of living and outstanding debt. Personal expenditures grew 0.8% in February 2024 alone, according to the Bureau of Economic Analysis, far outpacing the 0.3% personal income increase during the same 30 days.
“Several barriers hinder Americans from saving more, including low income, high living costs, significant debt burdens, unforeseen expenses, and a lack of awareness about financial planning,” said Dr. Jin Peng, assistant professor of finance at the University of Colorado at Colorado Springs.
How to Save Money
The first step to establishing an emergency fund begins with discovering what resources and actions are available to you. Once you recognize how to save money fast, it’s only a matter of time before you’ve stashed away a sizable nest egg.
Create a Budget
Use online tools to create a budget and establish your emergency fund. Some of the best free checking accounts allow you to link a savings account and seamlessly transfer money between accounts. “Having multiple accounts for different saving goals can lead to increased overall savings, as we feel compelled to contribute to each designated fund,” said Dr. Chang (Anna) Liu, finance professor at Ball State University.
Cut Unnecessary Expenses
If you don’t already know where you’re unnecessarily spending money, separate your last few months’ expenses into absolute musts (e.g., rent, car payment and utilities) and negotiables (e.g., eating out, entertainment and personal purchases). “Track all expenses meticulously to identify areas for potential savings,” Dr. Peng said. You might be surprised by how much you’re able to put away and still enjoy a treat now and then.
Pay off Debt
One in three Americans struggled with the most debt they’ve ever had in 2023, according to a report from financial advising company Northwestern Mutual. The average American’s personal debt (which doesn’t include mortgages) stood at $21,800, per the report, with credit cards as the top source of debt (28%). Balance contributing to your emergency fund and paying down what you owe by targeting debts with the highest interest rate.
Increase Income
With more money coming in, you can boost your ability to save and pay down debts. Additional income can also provide temporary relief should your primary source of income decrease or disappear entirely.
Take Advantage of Wealth-Building Tools
Americans can access numerous wealth-building tools, from high-yield savings accounts to certificates of deposit (CDs) and Roth IRAs. The best CD rates and high-yield savings APYs offer low-risk investment options to build wealth slowly but surely. “Starting to invest in any form at age 20 instead of age 30 to age 60 will likely double the amount at the end,” said Dr. Charles Higgins, finance professor at Loyola Marymount University.
The Bottom Line
Unlocking the secret to financial independence and achieving your monetary goals requires identifying how you can start saving. Dedicate a portion of your income to savings and investigate how you can better manage your income. Regardless of size and frequency, the investments you make today directly impact your future finances.
FAQ
The general guideline is to have at least three to six months’ worth of expenses set aside for emergencies, according to the FDIC. Another common rule of thumb is the 50/30/20 rule – which says that 50% of your after-tax income should go toward basic needs, no more than 30% to wants, and the remaining 20% should go into savings, according to the CFPB.
If that feels daunting, experts we spoke to recommended a smaller starting point: evaluating your financial commitments for one month and aiming to save at least half that amount. Then, create another savings goal — such as one entire month’s worth of expenses — and work to achieve it.
Generally, financial experts recommend three to six months’ worth of expenses set aside in an emergency fund. Ideally, this would be large enough to cover any unexpected expense that arises – or to replace your income for a period of time if you lose your job.
According to the AARP, you only need about 80% of your pre-retirement yearly income before you retire to live within your current means. Saving more before you retire can help ensure you’re prepared for any unforeseen expenses.
Our Experts
Charles Higgins, Ph.D.
Associate Professor of Finance, College of Business Administration
Loyola Marymount University
Bio: Charles Higgins has taught finance at the College of Business Administration since 1982. Prior to joining the faculty at Loyola Marymount University, Higgins taught at Claremont Graduate School, the University of Redlands and Mount St. Mary’s College. He has received the faculty member of the year award twice and is a member of Beta Gamma Sigma.
Chang (Anna) Liu, Ph.D., CFA
Assistant Professor of Finance, Miller College of Business
Ball State University
Bio: Chang (Anna) Liu is a tenure-track assistant professor of finance in the Miller College of Business. Her research focuses on behavioral biases in individual decision-making and optimizing stock selections using unstructured data. Prior to joining Ball State University, she was a quantitative investment researcher at Sumitomo Mitsui Asset Management, part of one of the largest banks in Japan, in New York City and Tokyo. At Sumitomo, she was responsible for developing quantitative long-short trading strategies with value-added alpha and optimizing equity portfolio holdings using unstructured data. She received her Ph.D. in finance from the Scheller School of Business at the Georgia Institute of Technology in May 2017.
Program Champion of Finance, Department of Finance in the Raymond J. Harbert College of Business
Auburn University
Bio: As program champion, Mandy Harrelson is responsible for integrating academic requirements, employer needs, professional development, and student preferences into a holistic program that promotes student entry into their chosen career field. She mentors finance students in the various career paths within the industry and helps them utilize resources on campus in hopes of competing for the best internships and career opportunities. Harrelson works closely with companies of all sizes to maximize their success in recruiting Harbert College of Business finance students.
Jin Peng, Ph.D.
Assistant Professor of Finance, College of Business
University of Colorado at Colorado Springs
Bio: Dr. Jin Peng has taught financial management and international finance courses at both undergraduate and MBA levels at multiple institutions including the University of Connecticut, Northern Kentucky University and John Carroll University. She received the “Recognition for Excellence in Teaching” award at UConn. She received her Ph.D. in business administration with an emphasis in finance from the University of Connecticut School of Business. She also holds a master of science in finance degree from Johns Hopkins University. Her current research area covers investment and corporate finance. Dr. Peng has presented or discussed at annual meetings of the American Finance Association, Financial Management Association, the Annual Conference on Financial Economics and Accounting, and the Global Chinese Real Estate Congress.
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