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Do Americans plan for the long haul?

Empty bank accounts, high spending suggest no

By Manav Tanneeru
Americans managed to spend more than they earned in 2005, figures show.



Personal finance
Economic Indicators

(CNN) -- The national savings rate for Americans is at its lowest point since the Great Depression, yet 78 million Americans will retire in the next 20 years.

These statistics cast doubt on the ability of Americans to plan for the long term and whether Americans consider long-term planning important, experts say.

The savings rate in 2005 was at minus 0.5 percent, according to a report released by the Commerce Department in January. The rate has been negative for seven consecutive months, according to David Wyss, an economist with Standard and Poor's.

"The decline in savings has been going on for about 15 years, but we've now attained the ultimate [with] the whole country managing to spend more money than we earn," Wyss said. "Last year was one of three times that the savings rate was negative."

The rate was also negative in 1932 and 1933, when Americans were dealing with the repercussions of the Great Depression.

There are some flaws in the way savings are measured, critics say, pointing to the fact that it does not take in to account capital gains, such as a home or a stock portfolio that increased in value.

"[But] this is a long-term trend with a measure we've used consistently throughout the years, and to say that it's a negative number for the first time in the lives of baby boomers and even beyond that, to the lives of seniors, is somewhat alarming," said Peter Rodriguez, an economist at the University of Virginia.

There are several reasons for the decline in savings, experts say. Americans may be feeling richer than they actually are because of a booming housing market and rising stock and asset prices. Meanwhile, low interest and mortgage rates have made it much easier to borrow and extend credit.

The other reason is more generational. The demographic groups that now drive American society are more willing to take risks and are more comfortable with high spending relative to the generations that came of age during the Great Depression and World War II, Rodriguez said.

"Particularly, the baby boom generation has grown up on mostly terrific economic times in historical context and compared to economic histories of other nations in the world except for a period in the late '70s that was full of malaise," he said. "It's been a really nice era of booms much larger than busts, and there is always this sense that good times are around the corner."

In a way, American prosperity has bred an optimism that makes people less inclined to save, believing that the prosperity will never end, Rodriguez said.

Finding the 'enthusiasm to save'

George Kinder and Susan Galvan -- founders of the Kinder Institute of Life Planning, a California-based firm that trains financial planners -- believe the decline in savings, and by extension, a lack of long-term planning in American society, is symptomatic of a broader insecurity.

"You have to look at what the source of the problem is," Kinder said. "Why save if there is nothing to save for? What is it that people should be saving for? Traditionally, we've been saving for retirement and that sort of thing, but those are just buzzwords, they don't mean much to people.

"As a consequence, many Americans are skeptical that they are being sold something by financial advisers."

The key is finding the "enthusiasm to save" by focusing on deeper and more meaningful life goals, Kinder said.

"We found that most people do not even talk about their most profoundly important goals, even with their spouses, because they can't see how they would be able to implement them or they're afraid of having them ridiculed, dismissed or discouraged. They keep them kind of buried inside," Galvan said.

The institute's planners try to unlock those answers, Galvan said, by asking their clients three questions:

-- If money was no longer an obstacle, what would they do with their life?

-- If a doctor informs them that they have a terminal illness and have only five to 10 years left to live, what would they do within that time?

-- If the doctor then informs them, they only have 24 hours left to live, what would they regret? What did they miss in life?

Whatever the reason, the lack of savings and long-term planning is troubling at a time when so many Americans will soon retire, Wyss said. Some 78 million Americans will enter retirement during the next 20 years, according to the U.S. Census Bureau.

"A lot of us are approaching retirement and a lot of us are approaching it with much too little saved up," Wyss said. "They're either going to depend on Social Security, which is hardly a good bet given the state of the federal government's finances, or they're going to be taking early retirement at the age of 75."

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