Most Americans would agree that our nation has made dramatic progress since the Great Depression. Advances in areas such as technology, health care and transportation over the last 75 years have brought in a new era, and a new century.
Yet in January the Commerce Department announced that the savings rate had dropped to minus 0.5 percent in 2005, marking the first time since the Depression that the national savings rate had fallen below below zero percent. In real terms, that means consumers spent $100.05 for every $100 they made.
The savings rate for Americans is the lowest since the Depression, and the negative national consequences of this trend are enormous. This news, however, generated little coverage from major media outlets. Like the warning signs before any crisis, few have stopped to consider what this development means, what it says about the America's financial health, and what needs to be done.
Sadly, too many Americans have grown used to living paycheck to paycheck and not nearly enough is being done to promote better personal financial habits and greater financial security.
Together, we have spent close to a century in public life working hard to open opportunities for more Americans to get ahead. We know that today not nearly enough Americans are saving, investing or protecting their future with insurance. We came together as advisory board members of the Coalition for Financial Security to identify and promote public policies and private sector best-practices that will help more Americans achieve greater financial security.
A poll released by the Coalition for Financial Security in December showed that seven in 10 Americans earning less than $75,000 annually have never owned investment products or an IRA, and more than half do not own life insurance. Clearly, there is much work to be done, and the consequences for ignoring this problem are serious.
For many families, the American Dream means having the ability to invest in the future and pass their savings on to their children. The good news is that we, as a nation, have made great progress: Many Americans are able to set aside finances and build a stronger financial foundation for their family.
But unfortunately, too many Americans lack basic knowledge about the financial tools that can help them save for the future. For these Americans, a lack of financial knowledge and planning is the single greatest barrier to buying a home, sending a child to college and retiring comfortably. We cannot expect to reverse the trend in Americans' spending habits until more Americans understand how to budget and make use of the savings, investment and insurance tools available to them.
One reason for the lack of knowledge is that there are not enough financial professionals reaching out to the millions of Americans who are not wealthy but have enough money to save. The Coalition for Financial Security's poll revealed that a large majority of those who do not own the financial products to help them save for the future have never been contacted by financial professionals who can help them.
In life insurance, for example, the survey found that 89 percent of those who do not own life insurance do not know anyone who sells it and 88 percent of those individuals have never been contacted about life insurance. Fewer financial professionals means there is less buying of financial products by families earning less than $75,000 a year, and in turn, less wealth creation.
Some within the private sector have realized the important role they can play in helping Americans prepare for the future. Recently, the American Council of Life Insurers (ACLI) studied what measures could be taken to enable more agents to serve middle- and working-class communities, an especially valuable effort since the number of life insurance agents has steadily declined over the last two decades.
Based on this study, the ACLI joined with the National Association of Insurance and Financial Advisers (NAIFA) to execute a set of recommendations that will help more agents educate and deliver important financial tools to more Americans. The ACLI-NAIFA initiative, announced in February, is a rare example of an industry taking a close look at its own practices and asking how they can be improved to increase contact with underserved communities.
The ACLI and NAIFA should be commended for their work, and other industries should follow their lead. By working together with leaders from the private sector, state governments can take critical steps toward making it easier for working Americans to connect with the necessary financial professionals and promote financial education. We hope that elected officials at the state level will support efforts like those announced by the ACLI and NAIFA.
We cannot afford to wait and watch while Americans spend themselves deeper into debt. Financial education is the key that will unlock the door to better saving habits for millions of Americans. Improving Americans' understanding of basic personal finance must come from effective public-private partnerships.
Jack Kemp is a former secretary of Housing and Urban Development; Raul Yzaguirre is former president and CEO of the National Council of La Raza; David Dinkins is the former mayor of New York City. They serve on the advisory board of the Coalition for Financial Security.