Largest Cities Not Home to the Best Savers
January 16, 2006
Contrary to popular belief, the nation's largest cities are not home to the best savers, as A.G. Edwards' first ever "Nest Egg Index" reveals.
The Nest Egg Index ranks America's 200 largest metropolitan statistical areas (MSAs) and the 50 states based on residents' personal savings and investing behavior. The index shows that people in the eastern part of the United States are doing a better job of saving for retirement than those living west of the Mississippi. Southerners are far from where Northerners are in terms of being ready for retirement. San Jose, Calif., was in the top spot in the initial Nest Egg Index, barely edging out New York's Nassau and Suffolk Counties on Long Island.
"With the U.S. Department of Commerce reporting a negative national personal savings rate in October, its lowest level in decades, it's apparent that many Americans are not setting aside enough personal savings," said Robert L. Bagby, chairman and chief executive officer of A.G. Edwards in St. Louis. "As millions of Baby Boomers enter their retirement years, this situation, if left unchanged, will have a profound impact on the economic well-being of millions of Americans."
The Nest Egg Index tracks Americans' saving and investing habits by looking at 12 statistical factors that directly affect or influence personal saving habits. First, there is savings propensity, which is the proportion of households in the area that have a savings product of any type, such as a regular savings account, CD or IRA. Consideration is also placed on 401(k) plan penetration and non-401(k) plan penetration. A.G. Edwards also looked at an area's investing propensity, excluding 401(k) plans.
Of course, net worth, home ownership and housing value, first-mortgage balance, personal debt level, household income, cost of living and local employment rates are also taken into consideration.
"Starting early, participating in a retirement plan at work and keeping personal debt low are all based on personal choices that help foster financial security for individuals and families, regardless of where they live," said A.G. Edwards Financial Planning Specialist Sophie Beckman.
Starting early and getting over the initial savings hump are the initial steps, A. G. Edwards recommends. The savings hump is something most investors face, which is trying to figure out where to begin.
The rest should fall into place. This includes: prioritizing one's long-term nest egg, paying oneself first, participating in employer-sponsored plans, diversifying, controlling and reducing debt, comparing what one spends with what one wants, monitoring progress of the savings plan, reviewing the income tax withholding, discussing saving goals with others who can provide encouragement and being ready for the unexpected.
The highly populated cities in the older Northeast and Mid-Atlantic regions did really well in the state-by-state rankings, as they took nine of the top 20 spots, the study revealed. The only states that were highly ranked west of the Mississippi River were Minnesota, third, and Colorado, 10th.
North Carolina was given a Nest Egg score of 97.91, compared to a national average score of 100, and was ranked the top-ranking state among southeastern states. The entire region scored under the national average. Among northeastern states, New York was the only state that ranked lower than North Carolina, as it received a score of 95.53. All of the states in the northeastern region achieved an index score of 99.71, or better.
It had been assumed that those states with the most big businesses would have the highest ranking, considering many big businesses offer employer-sponsored retirement savings plans. However, the study revealed that this, in fact, is not the case, as California, New York and Texas - homes of the most Fortune 1000 companies - were clobbered by Alaska, Wyoming and Vermont - states with no Fortune 1000 companies.
Surprisingly, states with higher per capita tax burdens did not do poorly. In fact, Connecticut and Minnesota were two of the top three Nest Egg states in terms of per capita in 2004, according to the U.S. Census Bureau.
"There may be a perception that economic and savings opportunities are more limited in smaller cities, Beckman said. "But in many of the small markets that scored well on the Nest Egg Index, unemployment is lower than the national average, and participation in savings plans such as a 401(k) is relatively high."
Of the states, New Jersey was ranked No.1 with a score of 114.35, followed by Connecticut (113.98), Minnesota (113.70), New Hampshire (112.19) and Massachusetts (111.77). California, Florida and Pennsylvania were tied for the states with the most communities making up the top 200 list at 13, followed by New York and Wisconsin (12), Ohio (11) and Indiana (10).
A.G. Edwards started the Nest Egg Index by reviewing the data for the 318 largest MSAs nationally and the 50 states. Each MSA or state was evaluated against the national average calculated for each of the 12 statistical factors discussed above. The data was then transformed to a common scale in which the national average on each factor was indexed at 100.
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