February 2024, Make Your Plan -
Our 2023 Retirement Savings and Spending Study uncovered several connections between savings motivations, money behaviors, and financial stress levels according to an individual’s financial personality type (saver, spender, or somewhere in the middle). Understanding which of these personalities you connect with more closely can help you lay out a retirement savings plan that addresses your inclinations and biases. If you’re unsure of where you fall on the spectrum, take the short quiz “What’s your spending personality?” to better understand your spending/saving persona.
In our 2023 study, we asked workers under age 50 to subjectively identify the money personality that best describes them and then answer a series of qestions regarding their finances. Thirty percent (30%) identified as savers, 20% as spenders, and 50% as a saver/spender combination. Generally, median income was higher for savers, but not all savers reported above-average income. Twenty‑nine percent (29%) reported incomes under $75,000 (2022 median household income according to the Census Bureau)—meaning that one doesn’t necessarily need to earn a high income to be a saver. Here are some of the trends we observed regarding saver versus spender attitudes and behaviors, followed by some actions that could help spenders save more.
Savers—score of 4–5
Middle of the road—score of 3
Spenders—score of 1–2
Source: T. Rowe Price Retirement Savings and Spending Study (2023). Respondents under age 50 were asked to select the statement that most closely resembles their thoughts on saving.
Source: T. Rowe Price Retirement Savings and Spending Study (2023). Respondents under age 50 were asked: Which of the following are reasons why you do not maintain a monthly budget? Respondents could select multiple reasons for not maintaining a budget.
Source: T. Rowe Price Retirement Savings and Spending Study (2023). Respondents under age 50 were asked to indicate the current outstanding amount of each type of debt held by their household and how often they carry or pay off their credit card balance each month (always or often).
Ultimately, we found that savers seek to provide for their families and achieve a sense of safety through an active savings approach and consistent budgeting. Similarly, when spenders manage to save, providing security and support for their families is a powerful motivator.
Source: T. Rowe Price Retirement Savings and Spending Study (2023). Respondents under age 50 were asked to cite the statement that best describes how they go about saving.
Perhaps spenders experience greater financial stress because they value financial security and realize they should probably be sticking to a budget and saving more. If you can identify with the latter situation, and would like to transition from spender or middle of the road to more of a saver, here are a few actions that could help nudge you in that direction:
Source: T. Rowe Price Retirement Savings and Spending Study (2023). Respondents under age 50 were asked to select the statement that most closely resembles their thoughts on saving.
1. Don’t shy away from budgeting. A household budget is a spending plan that helps you set priorities, targets, and limits on where your money is being directed each month. Keep it simple and start with the basics.
2. Rethink your relationship with credit cards. While credit cards can be crucial tools for bridging occasional cash flow gaps and are utilized by both savers and spenders, regularly carrying balances can lead to additional interest charges and increased stress.
3. Get your savings plan on autopilot. To move from a passive to proactive savings approach, set up an automatic investment plan where a fixed dollar amount is taken directly from your paycheck and/or checking account and invested in a savings vehicle each month.
4. Enroll in an automatic contribution increase plan within your 401(k) or other employer-sponsored plan. With an auto-increase plan, you can direct your employer to automatically increase the percentage of your income you contribute to your retirement plan each year. Every 1% to 2% annual increase can help you gradually progress toward the 15% annual savings rate T. Rowe Price recommends. Many workplace plans offer this service, and you can typically turn off or adjust your auto-increases at any time.
Like savers, spenders place a high value on supporting and achieving financial security for their families. But reluctance or lack of knowledge about money management fundamentals can cause anyone to fall short of feeling financial peace of mind. If you’re inclined to spend over saving and carry a higher degree of financial unease as a result, incorporating actions such as budgeting and automating your savings plan can help you better balance lifestyle enjoyment today with financial security tomorrow.
Lindsay Theodore is a thought leadership senior manager in Advisory Services within Individual Investors. She is a subject matter expert on retirement and personal finance topics and helps to articulate the firm’s perspectives. She is a vice president of T. Rowe Price Associates, Inc.
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1 To calculate your savings rate, add up all monthly investments/savings additions plus monthly employee and employer 401(k) contributions (from gross pay). Then, divide that figure by gross monthly income. Gross income and 401(k) contributions can typically be found on pay statements provided by your employer. Boosting your 401(k) deferral percentage will increase your savings rate but may reduce your net income and monthly surplus.
Important Information
The views contained herein are those of the authors as of February 2024 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.
This material is provided for general and educational purposes only and is not intended to provide legal, tax, or investment advice. This material does not provide recommendations concerning investments, investment strategies, or account types; it is not individualized to the needs of any specific investor and is not intended to suggest that any particular investment action is appropriate for you, nor is it intended to serve as a primary basis for investment decision-making.
All charts and tables are shown for illustrative purposes only.
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