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Here’s Why People Don’t Save Enough

In the United States and Singapore – places that emphasize self-reliance – many older workers and retirees admit that, if given a do-over, they would have saved more money over the past 20 or 30 years.

Regret was more common in the United States – 54 percent of older Americans had it versus 46 percent in Singapore, according to comparable surveys in each place. Perhaps the reason Singapore has less is because the government requires that employees set aside more than a third of their income in three government-run savings accounts for retirement, healthcare, and home purchases and other investments. On the other hand, Singapore doesn’t have Social Security or unemployment insurance, and private pensions are rare.

Whatever the differences, regret is a common sentiment in Singapore and the United States. What researchers wanted to know is: what is the source of that regret?

They tested two hypotheses. One is the human tendency to procrastinate and never get around to tasks that should be a priority. The other reason is largely outside of workers’ control: financial disruptions earlier in life that sabotage efforts to save, such as a layoff or large medical bill.

Employment problems, the researchers found, were a major source of saving regrets for 60- to 74-year-olds in both places but the impact was especially strong in the United States, which historically has had a more volatile labor market than Singapore. Disruptions that interfered with workers’ ability to save included bouts of unemployment and earning less than they were expecting. Early retirements and disabilities also led to saving regrets, as did unanticipated health problems and bad investments.

But procrastination as a reason for regret did not stand up to scrutiny. In this part of the survey, individuals agreed or disagreed with various statements designed to indicate whether they were procrastinators, including whether they work best under pressure or put off things they’re not good at.

The Americans and Singaporeans who were less inclined to prepare for the future had no more regrets about how much they’d saved than those with the willpower to follow through on their long-term commitments.

For most people, life’s unpleasant surprises – and not a tendency to procrastinate – seem to be a better explanation for why it is difficult to save.

To read this study, authored by Axel Börsch-Supan, Michael Hurd, and Susann Rohwedder, see “Saving Regret: Self-assessed Life-cycle Saving Behavior in the United States and Singapore.”

The research reported herein was derived in whole or in part from research activities performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement and Disability Research Consortium.  The opinions and conclusions expressed are solely those of the authors and do not represent the opinions or policy of SSA, any agency of the federal government, or Boston College.  Neither the United States Government nor any agency thereof, nor any of their employees, make any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report.  Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.

8 Responses to Here’s Why People Don’t Save Enough

  1. Chuck Miller says:

    This confirms my thinking that the major reason for not saving is spotty employment and lack of money.

  2. Brian says:

    What’s that old saying? —> “failing to plan is planning to fail.” That planning is certainly impacted by procrastination, which then leads to being susceptible and unprepared for life’s disruptions, such as was mentioned – unemployment, low earnings, early retirement, bad investments, etc.

    It’s all related and results in the accompanying regret.

  3. A lot of time the lack of savings is due to neither of these issues. I know more than a few people who just disregard the notion of saving for the future. They have lived their lives like there is no tomorrow and spend money on any and everything they want. This results in a lack of savings at the time they need to retire.

    • Paul Brustowicz says:

      Do you know my retired friends who continue to refinance their home to pay credit card debt every few years? They went through an inheritance like water over the dam. But they are the first to buy drinks at the bar.

  4. DaveD says:

    My dad used to say that it is not the high cost of living that keeps people from saving and investing; it is the cost of living high.

  5. John Perry, MD, MBA says:

    Why do we not have mandatory classroom instruction on personal finance that is age appropriate in every single year of schooling in the USA? I began instructing my daughter at age 4, and continued on almost a daily basis during her raising. Parents and schools should take the lead. I cannot think of one government program that has been efficient, accomplished its goals, and not been in financial trouble.

    • Scott says:

      Maybe because there is no evidence that personal finance education makes any difference. Most people need coaching at a point in time that they also have earnings.

      For most, that is at one’s first “real job”.

  6. Debi Street says:

    It is not only unpleasant surprises over a working life that undermines savings. It is also the unpleasant quotidian reality of too many people in low wage, precarious jobs with no surplus to save. Many people, in both countries, never earn enough to have anything left over to save in the first place, once they pay for the necessities of life.

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