By Brian Hepp Market Matters
DESPITE A POSITIVE ENVIRONMENT FOR wealth-building, nearly one third of U.S. adults have not done anything in the past 12 months toward building their personal savings. This according to the most recent quarterly iteration of the A.G. Edwards Nest Egg Score Survey, which also says that 67 percent of adults believe personal choices have the greatest impact on their ability to build personal savings.
One third (33 percent) of survey respondents believe external factors such as the economy have a greater influence on their ability to build personal savings, which may explain why a full 31 percent took no action toward building their savings over the past year.
The March 2007 Nest Egg Score of 645 shows an eight-point increase from the December 2006 score. Compiled from a proprietary analysis of 12 factors, including government data and proprietary research, the quarterly Nest Egg Score is intended to show how well Americans are doing at saving and investing. Several factors contributed to the Score’s improvement this quarter, including continued low unemployment and moderate inflation due primarily to declining energy prices.
But rather than take heart in the fact that the Nest Egg Score is improving, investors need to take action and make improvements in their savings behaviors so they can take advantage of this favorable economic climate. Even simple steps can get people back on track when it comes to their personal savings. To use a timely example, many taxpayers will be receiving a tax refund soon — if they haven’t already — and a portion of that refund check could be set aside in a savings account of some kind.
Even those who do not plan to receive a tax refund can still make slight adjustments in their savings habits that can lead to potential long-term benefits. Employees who participate in a company-sponsored retirement plan should consider regularly increasing their contribution percentage to their plan. And others who don’t participate in company plans can still open individual retirement plans and make regular contributions. In fact, now is the perfect time to contribute to such a plan as taxpayers could receive tax benefits for finalizing their contributions for the 2006 tax year.
To help us understand why the current economic environment is favorable for saving, the Nest Egg Score Survey data offer some interesting insights on several of the factors that contributed to the Score’s increase this quarter. For one thing, the wealth-to-income ratio rose to its highest level during a five-year comparison period. Additionally, a decline in the cost of living also helped boost the Nest Egg Score and the unemployment rate remained at a five-year low. All these factors should put Americans in a good position to do something about their savings.
In addition to getting their own savings in gear, adults should also work to help younger generations establish good savings habits as well. Some of the Nest Egg Score Survey research suggests that some older adults waited until they secured their first job or got married before they started to think about building their own personal savings. But if these same adults encourage kids to start saving at an early age, these children will be much better off in the long run.
To illustrate with an example, if a 25-year-old invested $50 per month in a tax-deferred account, by the time he or she reached age 65 the account would be worth more than $175,000, assuming an 8 percent annual rate of return. But if they started saving the same amount at age 15, assuming the same 8 percent rate of return, the account would be worth $400,000 at age 65.* For more information on the Nest Egg Score Survey, or to calculate your own personal Nest Egg Score, please visit www.aged-wards.com/fc/brian.hepp. *This hypothetical example is not representative of any specific product. The effects of taxes and commissions have not been included in the figures, which would lower the end results.
BRIAN HEPP is a financial consultant for A.G. Edwards & Sons, Inc. He (310) 453-0077 or at
Originally published in the Santa Monica Daily Press print edition on March 28, 2007. Read the original PDF.