It is the same number of Americans who live in big cities, the same number of Americans who don't get to the dentist at least once a year and the same number of Americans who go online regularly at work. It is one-third of Americans, and it is the number of Americans who, according to a PaineWebber/Gallup survey, have no savings to speak of.
As credit unions it is part of our mission to encourage savings, both as an explicit part of the definition of a credit union and because we wish to improve the financial health of our members. A recent study by the Consumer Federation of America and the Financial Planning Association, however, found that most Americans have not developed a financial plan to assess their overall goals and map out how to reach them. Yet few things can more substantially improve our members' lives than a sensible financial education and a strategy for saving.
Two years ago at this time I wrote a piece similar to this one which addressed the state of savings in America. In it, I presented a three-point action plan through which credit unions could create a country of savers. In order to increase the savings rate in this country, I reasoned, credit unions must work to: encourage the federal government to implement policies that facilitate saving, teach Americans that saving is both possible and necessary, and make saving more attractive and accessible through member services.
Since then, credit unions have continued to make strides in introducing creative savings products and reaching into their communities to spread the savings word. On the legislative front, too, we have made progress in helping to advance legislation that makes saving easier and rewards families' fiscal responsibility. Now, we stand poised to go even further.
Plan Worthy of Support
As part of the 2001 tax relief package, Congress enacted the Comprehensive Retirement Security and Pension Reform Act, and I was pleased to represent credit unions at the White House as the President signed this NAFCU-backed legislation. The legislation increased 401(k) and IRA savings limits, instituted catch-up contributions for older workers, enhanced pension portability, encouraged small business pension coverage and simplified pension regulation.
For the 108th Congress, Reps. Rob Portman (R-OH) and Benjamin Cardin (D-MD) have introduced the Pension Preservation and Savings Expansion Act of 2003. As they discussed with me at the 2002 National Summit on Retirement Savings, Reps. Portman and Cardin are looking to build on the improvements of the 2001 law by:
*Matching the vesting schedules for employers' contributions to the schedules for employees' contributions.
* Allowing earlier eligibility for deductible IRAs and eliminating the related marriage penalty.
* Providing for corrections in IRA distribution mistakes.
* Creating a new pension interest rate based on rates for long-term conservative corporate bonds.
* Endowing employees with the right to better diversify company stock contributed to their 401(k) accounts.
Also remaining in play is a Bush administration proposal for retirement and lifetime savings accounts. Treasury Assistant Secretary for Tax Policy Pamela Olson recently told attendees at a retirement savings conference that the proposal deserves consideration. Olson pointed to the traditional Individual Retirement Account that became subject to eligibility phase-outs beginning with the 1986 tax reform law. The phase-out of taxpayers' eligibility for these accounts based on income, coupled with more recent changes establishing different types of IRAs and savings vehicles has helped drive down participation due to confusion over eligibility, deductibility and the benefits of continuing to contribute. Olson said there is still room for revamping this system and that the president's proposal, released this January, is a good place to start. I second that.
A Loaded Issue
The original budget package included provisions for a new Retirement Savings Account, Lifetime Savings Account and Employer Retirement Savings Account. Though the impact of such accounts on credit unions will not be completely clear until more details are known, any proposal that would deliver to Americans easier-to-use savings vehicles is worth considering.
Savings is also somewhat of a loaded issue, and one that many misunderstand. You may hear members reason that if the nation's workers earned a fairer wage they would be more able to sock something away. Another might tell you that over-taxation is to blame for his or her inability to build a nest egg. "If I only had that money FICA took " The truth is, though, that none of these factors are solely to blame for the private savings rate in the United States reaching its lowest level in more than 40 years. Saving is a habit. Like exercise, good oral hygiene and other healthy habits, we know we can't force members to save.
What we can do is work to change their opinions about savings and then place as many helpful programs as possible in their path to be used once they choose to save. This week, at its Annual Conference, NAFCU will debut a new financial education program to help credit unions teach members money management skills. The program is an adaptation of the FDIC's Money Smart curriculum, a set of teaching materials designed for use by banks and community groups to teach young adults and those outside the financial mainstream both basic and more advanced money skills.
Adapted For Credit Unions
NAFCU has taken the materials and adapted them for use by credit unions and will soon make these modules available free to members who would like to begin teaching the program. Though it is designed for adults, the Money Smart program is innovative in its simplicity. It breaks down complex topics like savings into digestible pieces for students. Financial education is especially critical to those aged 18 to 19 who are at a crucial crossroad, migrating from learning about financial services from their parents to seeking additional information from outside sources.
For credit union members who have already made the decision to save and wish expert guidance in doing so, NAFCU Services Corporation will debut a program through which NAFCU-member credit unions may pass on to their members substantial discounts on financial planning services. The popular host of the PBS series "Your Financial Future with Jonathan Pond" and the staff at Financial Planning Information, Inc., will prepare for your members a detailed financial review of their current situation and offer analysis and guidance. Pond's unique "Your Financial Road Map" is prepared from information provided through an in-depth questionnaire you can make available at your credit union or on your credit union's website. Members remit the form to Pond and, in return, receive their custom roadmaps. We are pleased that Jonathan Pond himself will be with us, in the NSC Pavilion, on Thursday afternoon.
The National Bureau of Economic Research concluded that saving is not tied to income but rather a decision to save. Credit unions can help members choose that path by making their entire operation savings-focused. I know you are working to get members the facts and tools needed to become lifetime savers at each turn through new products, educational programs and legislative initiatives and that you will be a deciding factor in their choice to save. NAFCU is looking, and will continue to look, for ways to assist you in this important effort.
Fred Backer is president/CEO of NAFCU. Mr. Becker can be reached at 3138 N. 10th St., Arlington, VA 22201.
