By Mark Wolf

Many Americans believe their finances are in good order because they are saving regularly for retirement, often through an employer-augmented 401(k) plan.

Matt Fellowes addresses a session at the recent NCSLleadership forum on "Opportunities for Working Families in Tight Budget Times."While retirement savings are important, Matt Fellowes says workers should consider that a healthy 401(k) retirement balance may not be enough of a cushion if the worker has also accumulated substantial debt.

"It's stunning to see in our data and the fed data that we have about 60 percent of workers accumulating debt faster than retirement savings," Fellowes told a session on "The State of the American Wallet" at a recent NCSL leadership forum, "Opportunities for Working Families in Tight Budget Times."

Fellowes is a former fellow at the Brookings Institution and now founder and CEO of HelloWallet, which makes software designed to help employers and employees make the most out of their salaries and benefits. He told the group of legislators and staff that Americans spend more than $30 billion each year on bank fees, that only 15 percent of U.S. families have a budget and that about half of U.S. households spend more than they earn.

"There is a silo approach to this. You have retirement vendors being subsidized by employers to promote retirement savings, have the research community promoting retirement savings, the worker is surrounded by all these messages saying 'retirement savings' but no one is talking about how on the day you retire, your balance is your assets minus your liabilities. It's not about your 401(k) balance," he said in a brief interview following his presentation.

The American dream of home ownership can give a false sense of economic security, Fellowes said.

"It's great to buy a house but if you are paying 40 to 50 percent of your income on that house and running up credit card debt you don't really have an asset," he said, adding that 70 percent of workers nearing retirement still carry housing debt. "The average homeowner is selling their home within nine years of buying it, which can stunt wealth accumulation and create large additional transactional costs associated with buying, selling and moving."

The complexity of financial instruments makes it more difficult for workers to figure out what to do, Fellowes said.

"It is particularly problematic for low-wage workers because their margin of effort is basically nonexistent. A tiny little slipup can send them into financial crisis," he said.

Nearly 80 percent of Americans underestimate how much they need (at least three months of income) to save for emergencies, Fellowes said.

Financial solutions should not be aimed just toward low-wage earners, he said, "because that immediately constrains the audience you're talking about to 10 to 15 percent of your population. These things affect most families today except for the very wealthy and that creates a much more powerful political constituency."

Mark Wolf is an editor at NCSL.

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This blog offers updates on the National Conference of State Legislatures' research and training, the latest on federalism and the state legislative institution, and posts about state legislators and legislative staff. The blog is edited by NCSL staff and written primarily by NCSL's experts on public policy and the state legislative institution.


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