Whether it’s at grocery stores or gas pumps, people across the country are feeling the effects of inflation and many households have been forced to make major changes to their spending habits. But, what has happened to their saving habits?
Despite inflation, consumers remain focused on stashing a portion of their money away, showing they recognize that saving is key to long-term financial wellness. The vast majority of Americans are putting at least some money into savings, about 91 percent of respondents to Plinqit’s State of Savings report.
However, for many Americans, a portion of their savings is actually going toward debt. The State of Savings report reveals that nearly half of Americans, 42 percent, are putting money aside to pay down their debt. Given the Fed’s string of interest rate hikes in 2022, borrowing is now more expensive and, although consumers may want to get out of debt, the current economy is making this hard to accomplish.
Still, Americans are trying to find ways to balance paying down debt while saving for their future. So, what do consumers’ current saving priorities suggest and what does that mean for community banks?
Many save for emergencies…
Income changes, job losses, health concerns and more can shake a person’s financial foundation, leaving no better time than now to start an emergency fund. However, with inflation causing spikes in the prices of everyday goods, many U.S. households feel uncomfortable about the state of their emergency savings funds. According to Bankrate, the percentage of Americans who are comfortable with their emergency savings has gone from 54 percent to 42 percent in just two years, while those feeling uncomfortable has jumped from 44 percent to a majority at 58 percent.
Based on the State of Savings report, more consumers are building up their emergency funds, both for short-term and long-term expenses. Almost one-third of Americans are putting aside money for a long-term emergency fund and more than a quarter (28 percent) are saving for a short-term emergency fund.
…But few save for retirement
Another takeaway from the State of Savings report is that consumers are saving less for retirement than they have in past years. Overall, 35 percent of the consumers surveyed, across all age groups, said they are saving for retirement. However, when segmented by age, retirement saving is the top category for consumers ages 55-64, with 49 percent saving for retirement.
This may indicate that this group realizes they need to catch up and make up for lost time. Nearly half of baby boomers have no retirement savings at all, and of those with savings, the median balance is less than $300,000, according to research from Stanford. Failure to prioritize retirement savings early can have long-term impacts, but it’s not too late for banks to help.
Lending a hand
While it’s positive to see that consumers recognize the importance of saving and are actively contributing to their savings, there is still work to be done, and saving is just one step on the journey to a more positive financial future. Fortunately, community banks are perfectly positioned to help customers build the financial future of their dreams, no matter what their dream looks like, and achieve long-term financial wellness.
With a thoughtful strategy, financial wellness programs can be a powerful asset for your bank and the community it serves. As you strategize your bank’s financial wellness offerings, keep in mind the following three considerations:
- Re-think Financial Education
Empowering consumers to reach their full potential when it comes to their finances requires more than standard educational content. Consumers do not want or need more website content or blogs about the importance of budgeting and saving.
Instead, community financial institutions can be inventive with the tools and support consumers need to achieve their savings and financial goals. In other words, banks should not just tell consumers what to do; they must also focus on helping consumers act and make meaningful progress toward their goals. Give consumers the products, services and personalized guidance — in screen-friendly servings — that they need to reach their goals, whether it’s buying their first home, buying a car or simply having enough money saved in case their pet requires an unexpected vet visit.
- Know Your Bank, Know Your Opportunities
Before rolling out new financial wellness initiatives or savings programs, make sure your team deeply understands the markets or community your bank operates in. What is your current customer demographic? Is your institution in a college town? Or, is it located in an area popular with retirees? These variables should influence what your bank’s financial wellness initiatives look like. What is your institution’s budget for financial wellness? Some banks may choose to build their own program from the ground up, while others may opt to partner with a fintech.
As you determine your budget for financial wellness initiatives, stay focused on the purpose behind them and what objectives your bank aims to achieve. Revisiting the reasons for rolling out these programs — and how the community will engage with them — helps financial institutions understand what level of effort their team can sustain and which programs will be most effective.
Next, identify worthwhile opportunities to pursue. For example, in large, urban markets with a younger population, there are plenty of gig economies. Individuals in these markets often work for companies such as Uber or DoorDash on a contracted, hourly basis, which means these individuals may not have an effective way to save for retirement. In an area like this, a retirement savings product can be a huge win, as these services will immediately resonate with and positively impact those in your bank’s community.
- Create a Roadmap
Once your bank has identified the biggest opportunities to impact financial wellness, create a roadmap. Start with an innovation work group that includes leaders from across the institution who can help determine what products, programs and services will resonate most in your market. With this approach, it is much easier to find the right product, strategy or partner for your bank. At the same time, your team is less likely to get distracted by the latest innovation which may look cool, but not necessarily be a great fit for what your bank is trying to solve.
The Path to Success
With a potential recession on the horizon, consumers have and will continue to experience economic challenges that affect their financial wellness and their savings priorities. However, with the right products, personalized guidance and financial wellness support, community banks can empower customers to navigate the road ahead, reach their savings goals and ultimately, build a more optimistic financial future.
A former community banker, Kathleen Craig is founder & CEO of Plinqit, a fintech focused on customer attraction, retention and financial wellness via its savings platform.