The Public Mood: Thrift Is In, Debt Out

According to the American Banker's national consumer poll, the public is becoming decidedly more interested in saving than in borrowing.

Demographers have been predicting the shift as a consequence of an aging population, which is likely to be more conservative and less interested in the extravagances that tend to be purchased on credit.

This year, consumer behavior may be influenced more by the sluggish economy than by the long-term demographic shift. Still, the American Banker survey shows an unmistakable move toward a savings ethic. The responses suggest that bankers seeking to attract stable consumer deposits have the public mood on their side.

Half the respondents to the poll, which was conducted in May by the Gallup Organization Inc. of Princeton, N.J., "strongly agreed" that they were trying harder to save than they were a year ago. A further 15% were in less emphatic agreement, bringing the total to 64%.

Meanwhile 47% reacted positively to the idea of an automatic savings plan as a means of discipline.

Of the 1,007 consumers across the country interviewed by telephone, four out of five agreed with the statement. "Consumers have taken on too much personal debt." Almost two out of three "strongly agreed" with that proposition.

Less Affluent Are Saving

Perhaps reflecting the economic pinch, the urge to save appeared strongest among market segments that most bankers would consider downscale.

While 49% of the total sample "strongly agreed" they are trying harder to save this year than last year, the percentage was significantly higher among finance company customers (64%), 18-to-34-year-olds (57%), people who never attended college (56%), and people with annual incomes below $40,000 (54%).

Among upscale segments, percentages "strongly agreeing" they were trying to save more this year included 37% of stockbroker customers, who tend to be more affluent than finance company borrowers; 39% of people with annual incomes above $75,000; and 41% of college graduates.

Women Appear Thriftier

Among women, 53% were in strong agreement with the savings notion, significantly higher than the 45% of men in the same category.

Equibank in Pittsburgh saw the sex differential in its market research. The bank began to aim its marketing at women after it found they often controlled households' finances in the heavily blue-collar Pittsburgh area.

Response to the bank's "Dollar for Dollar" program exceeded expectations when it was launched three years ago, and money is still flowing in, said Equibank spokeswoman Joyce Stumpf. The program promises "big deposit interest for small deposits": $50 a month saved for the maximum 17 years (the minimum is seven years) would yield $20,982 - $10,200 from the consumer and $10,782 in bank interest.

Women 18 to 34 have been more interested in saving than men of the same age, according to Melvin Prince, market researcher and associate professor of marketing at Fordham University in New York.

Studies show that "females are freer to seek present gratification through spending [yet are] more security-oriented in money handling." What's more, Mr. Prince said, women are usually more receptive than men to advice about money matters -- a perfect audience for the unfamiliar features in many automatic savings products.

In focus-group interviews by Security National Bank in Sioux City, Iowa, young householders said that although they recognized the importance of saving money, they needed help.

The bank responded last fall with its SOS (Serious on Savings) account, aimed initially at households earning between $25,000 and $50,000.

For a minimum $25 deposited per month, the account pays 5% interest until the balance reaches $500, then it pays 5.25%. Security National pays 4.5% on its regular savings account and 5.5% on its money market account.

Each SOS saver works out a customized savings plan with the help of a Security National banking representative, including the target amount, the reason for the savings plan, such as home down payment or vacation, and the amount that will be put away each month.

The account has had strong, steady response from the beginning, even when not heavily advertised, said product manager Brenda DeWitt. In fact, a special tax-season promotion to holders of Security National's low-fee checking account produced another surge in SOS account growth.

Most SOS savers set aside $75 to $100 a month, sometimes in weekly installments.

If pushed, some might be able to put more away, according to another Gallup survey, which the polling organization conducted for Bank Advertising News. It found that American savers were setting aside an average of $289 a month, and 18% were saving $400 a month. Another 33% believed they could save $400 if they made the effort.

Really startling, said Carole Hewitson of Gallup's financial research division, were the income levels of those who thought they could hit that mark if they tried. Twelve percent with annual incomes under $20,000, 34% with incomes between $20,000 and $59,000, and 65% with incomes above $60,000 a year thought they could save $400 a month.

IRAs Still Popular

The urge to save is apparently so strong that individual retirement accounts have lost little of their luster despite their reduced eligibility for income tax deductions.

Forty percent of respondents to the American Banker/Gallup survey said they had IRAs, and 62% of that group said they were still adding to the accounts regularly. But 35% said that either their accounts are inactive or they plan to close them, and 22% did not know if they were still eligible for tax deductions.

The strongest commitment to IRA investments is in the upper income brackets. Gallup reported that 52% of households with annual income over $75,000 planned to keep adding as much as they can each year.

Savings accounts and programs can be a key to loyal, long-term customer relationships. According to a recent savers' survey by the Financial Institutions Marketing Association, Chicago, 35.8% said they considered their primary financial institution to be the one holding their savings.

And 68% of the 2,990 in the survey said they had stayed with the provider of their savings accounts for more than five years.

JUDY FERRING Retail Banking Manager is an American Banker newsletter.

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