How Much Does the Average Lower Income Class Person Have in Savings?

15/06/2024

Money jar filled with American currency. Savings and donations concept.

Understanding the financial landscape of lower-income individuals is crucial for grasping the broader economic challenges faced by a significant portion of the population. While many focus on median or average savings across the entire U.S. population, it’s essential to zero in on the savings of those in the lower-income brackets to paint a clearer picture of financial health disparities.

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Key Insights into Savings Among Lower-Income Individuals

According to data from Federal Reserve’s Survey of Consumer Finances (SCF), individuals in the bottom 20% of the income distribution in the United States have an average savings balance of $7,860. This is the lowest average savings for any income group, highlighting the financial struggles faced by this demographic.

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Factors Influencing Savings

Several factors influence the savings of lower-income individuals, making it challenging for them to build substantial financial buffers:

Daily Living Expenses: Lower-income individuals often struggle to cover essential living expenses such as rent, utilities, groceries, and transportation. These expenses can consume the majority of their income, leaving little room for savings.
Debt Obligations: High levels of debt, including credit card debt, personal loans, and payday loans, can significantly hinder the ability to save. Lower-income individuals might prioritize debt repayment over saving due to high-interest rates.
Economic Conditions: Economic downturns and job insecurity disproportionately affect lower-income individuals. During periods of economic instability, these individuals might dip into their savings to cover basic needs, further depleting their financial reserves.
Cultural and Psychological Factors: Attitudes towards money and saving, shaped by cultural background and personal experiences, also play a role. Some individuals may prioritize immediate consumption over long-term savings due to a lack of financial education or the belief that they cannot afford to save.
Access to Financial Services: Limited access to financial services and products, such as high-yield savings accounts or retirement plans, can also impact savings rates. Lower-income individuals might not have the same opportunities to grow their savings as those in higher income brackets.

Middle-Class Savings: A Comparative Look

For context, examining the savings of middle-class individuals provides additional insight into financial disparities. Middle-class savings vary significantly by state, reflecting differences in income levels and cost of living.

Average Savings by Income Percentile

According to data from the Federal Reserve’s 2022 Survey of Consumer Finances:

Lower-Income Groups (Bottom 20%): $7,860
Middle-Income Groups (40th to 59.9th Percentile): $25,200
Upper-Income Groups (80th to 100th Percentile): $353,030

Middle-Class Income Ranges by State

Here are the middle-class income ranges for selected states, illustrating the variation across the country:

California: $61,269 to $183,810
Texas: $48,690 to $146,070
New York: $54,257 to $162,772
Florida: $45,278 to $135,834
Illinois: $52,288 to $156,866
Ohio: $44,660 to $133,980
Georgia: $47,570 to $142,710

Factors Influencing Middle-Class Savings

Middle-class savings are influenced by several factors, similar to those affecting lower-income individuals but with some variations:

Income Stability: Middle-class individuals generally have more stable incomes, allowing for more consistent saving.
Debt Levels: While debt can still be an issue, middle-class individuals might have better access to credit and lower interest rates, reducing the burden of debt repayment.
Financial Literacy: Higher levels of financial literacy and access to financial planning resources can help middle-class individuals save more effectively.
Economic Conditions: Economic growth and job security can boost savings, while recessions can have the opposite effect.
Family Obligations: Middle-class individuals often save for specific goals, such as children’s education, homeownership, and retirement, influencing their overall savings patterns.

Strategies for Boosting Savings Among Lower-Income and Middle-Class Individuals

Despite the challenges, both lower-income and middle-class individuals can employ effective strategies to boost their savings:

Automate Savings: Setting up automatic transfers to a savings account can help individuals save consistently without having to think about it. Even small, regular contributions can add up over time.
Budgeting: Creating and sticking to a budget is essential. The 50/30/20 rule is a popular method where 50% of income goes towards necessities, 30% towards discretionary spending, and 20% towards savings or debt repayment.
Reduce Unnecessary Expenses: Identifying and cutting back on non-essential expenses can free up more money for savings. This might include dining out less frequently, canceling unused subscriptions, or finding cheaper alternatives for everyday items.
Utilize Financial Tools and Resources: Leveraging budgeting apps, expense trackers, and online banking tools can provide valuable insights into spending habits and help individuals make informed financial decisions.
Seek Financial Education: Increasing financial literacy through workshops, online courses, or community programs can empower individuals to make better financial choices and understand the importance of saving.

Conclusion

The financial reality for lower-income individuals in the United States is stark, with average savings of just $7,860. This highlights the urgent need for targeted financial education, accessible savings products, and supportive economic policies to help this demographic build financial resilience. By understanding the unique challenges faced by lower-income individuals and implementing effective strategies, we can work towards a more financially inclusive society. Similarly, by addressing the varying savings needs and goals of the middle class, we can ensure broader financial stability and growth across all income levels.

Editor's note: This article was produced via automated technology and then fine-tuned and verified for accuracy by a member of GOBankingRates' editorial team.