Never mind what's in your wallet – what's in your savings account?
A savings account is your buffer against unexpected expenses. Without sufficient savings, you'll probably rely on credit to handle financial setbacks – exposing you to interest charges at best and a potential debt spiral at worst.
According to a new study from ValuePenguin, the median savings account balance for all Americans with savings accounts is $7,000 – meaning that half of households with savings accounts have less than $7,000 in their account.
ValuePenguin reviewed data from the Federal Reserve's 2016 Survey of Consumer Finances to gain insight into America's savings profiles. Median values, the midpoint if all the values were ordered from lowest to highest, are used because it gives a better picture than the $30,600 average savings balance. (It takes a lot of average Americans to balance out the account of one wealthy American.)
As you might expect, savings account balances vary drastically by income. For example, households with incomes of less than $25,000 had an average balance of $6,021 but a median balance of only $670. Move to incomes of $70,000 and the average rises to $15,333 with a median balance of $6,000.
With incomes over $160,000, the average savings tops $117,000 with a median balance of $54,000 – driving home the skewing effect. The effect may be worse than the study shows, since wealthier families are more likely to transfer excess funds into investment accounts with higher returns.
America's savings account balances vary by age – again, an unsurprising finding. The median savings account balance is $2,000 for Americans under age 35, rising steadily all the way through the median balance of $16,250 for Americans at or over age 75.
Average account balances also rise steadily from the $8,362 of those under age 35 to the $54,089 of Americans aged 65-74, before dipping to $42,291 at age 75 and above. That's logical, since the oldest segment of the population is more likely to draw living expenses out of their savings accounts.
According to data from the Federal Reserve, overall savings deposits have been rising sharply, from $3.87 trillion at the beginning of 2008 to $9.32 trillion at the beginning of January 2019 – but that doesn't reflect higher median savings. A more likely reason is an increased wealth gap and population increase over the last 11 years.
A December 2018 survey from GOBankingRates paints an even gloomier picture of savings accounts. Over half of households surveyed (58%) either have less than $1,000 in their account or no savings account at all – slightly up from the 57% in that category last year. Almost one-third (32%) of households have no savings at all.
Using GOBankingRates data, the median balance for savings accounts should be somewhere between $1,000 and $4,999. While 26% of respondents have less than $1,000 in their savings account, 15% have between $1,000 and $4,999 in their accounts and 28% have more than $5,000.
Surveys may vary, but the message is the same. Too many Americans are living paycheck to paycheck or nearly so, without sufficient emergency funds.
How does your savings account stack up? Could you handle an economic disruption similar to the government shutdown's effect on government workers? If your savings account couldn't handle a month of no income – not to mention the three-month minimum of living expenses that experts suggest – now is the time to focus on bulking up your rainy-day funds.
Review your budget for any areas that can be trimmed and shifted over to savings. If you don't have any savings at all, our advice is still the same – and the need is even more urgent.
If you want to reduce your interest payments and lower your debt, join MoneyTips and use our free Debt Optimizer tool.