“We have to cajole our younger employees to put money into our 401k plan,” says Hanrahan, president of Capital Bank of New Jersey. Hanrahan admits that he didn’t think much about saving for retirement when he was in his 20s, but he can’t understand how younger bankers are missing a sure thing. Capital Bank offers a 50% match on the first 6% that workers put into the 401k.
“Where else are you going to get that kind of investment yield?” asks the puzzled Hanrahan.
Meanwhile, he sees America’s senior citizens “getting the short end, thanks to current monetary policy.” They worked hard and saved hard, he says, and reasonably expected a return of 4% or 5% on their CDs. Instead, “they’re getting plucked right now, to the extent that they are having their lifestyles affected.”
Hanrahan and six other bankers from ABA’s Community Bankers Council recently discussed savings trends in their communities, and they are finding some common trends—even some contradictory developments. Consumer attitudes towards lifestyle priorities and timing, feelings about the future, and a surprising lack of financial sophistication seen around the country and across the demographic arc all hold implications for the industry.
• Glenn Buddin, CEO and CFO, Blue Ridge Bank, $99.4 million-assets, South Carolina
• Brian Thomas, President and CEO, Clear Mountain Bank , $470 million-assets, West Virginia
• Laurie Stewart, President and CEO, Sound Community Bank, $400 million-assets, Washington
• Marcia Honomichl, President and CFO Commercial State Bank, $130 million-assets, South Dakota
• Deborah Cole, President and CEO, Citizens Savings Bank and Trust, $100 million-assets, Tennessee
• David Hanrahan, President and CEO, Capital Bank of New Jersey, $291.6 million-assets, New Jersey
• Scott Racusin, President and CEO, Wedbush Bank, $265 million-assets, California
Looking ahead, the bankers also are wondering when today’s cheap deposits will morph into more-expensive and more-elusive funding. In today’s market, the relative dearth of loans dominates many banker discussions, but there’s concern that matters will flip.
“Do you think we are getting into a false sense of security, as bankers?” asks Brian Thomas, president and CEO at $470 million-assets Clear Mountain Bank, Bruceton Mills, W.Va. “The shift to low-cost funds is great, if you’re a banker, but when rates start to increase again, I think we’re going to see a pretty significant shift back from low- to high-cost, and I’m concerned many of us aren’t thinking about that.”
Others agree. Laurie Stewart, president and CEO of $400 million-assets Sound Community Bank, Seattle, Wash., says her bank has worked hard through the low-rate period to renew time deposits, “to try to keep that book of business.”
“FDIC makes us perform interest rate analyses, and we complain that it’s a pain in the neck,” says Hanrahan. “But you have to think about the betas in your interest rate analyses and wonder how transaction accounts will behave when rates rise again. Maybe the assumptions we’ve been using in our analyses are outdated and incorrect.”
What also concerns the bankers is that American’s savings attitudes, habits, and abilities have been shifting. For all the attention paid to teaching young America to save, with some success, bankers worry their parents and grandparents suffer from their own lack of financial literacy.
Can younger adults save today?
The bankers participating in the roundtable come from community institutions with a wide variety of business models and local circumstances. Stewart’s bank hasn’t had difficulty growing loans, and has done sufficiently well with deposits through this period to maintain a loan-to-deposit ratio of around 98%. Marcia Honomichl, president and CEO at $130 million-assets Commercial State Bank, Wagner, S.Dak., is surrounded by farmers enjoying good times and comparatively low loan demand, producing a ratio below 60%. Hanrahan’s ratio runs around 70% to 75%, because he’s getting loans in his New Jersey markets, but deposits come in faster than he can lend. Deborah Cole, president and CEO at $100 million-assets Citizens Savings Bank and Trust, Nashville, Tenn., specializes in church loans and has a ratio of 90% in the midst of a planned growth period.
Scott Racusin, in some ways, is the envy of the roundtable members. He heads Wedbush Bank, Los Angeles, Calif. De novo Wedbush is an affiliate of Wedbush Securities, and can turn on a “tap” at the securities firm when it wants to accept the affiliate’s customer deposits. He balances this with other deposit sources to avoid over-dependence. With loan demand down locally, he’s successfully explored other credit strategies. This includes an out-of-state municipal lending program profiled on ababj.com ( http://tinyurl.com/wedbushideaexchange).
Most panelists are seeing much less savings on the part of younger adults, except where it is essentially forced through auto-enrollment in 401k plans. While some of this could be blamed on the Great Recession’s impact, the bankers typically refer not to that but to changes in lifestyles, in multiple senses.
Honomichl and Thomas note the tendency among many young people today to want to live as high as they can. The group noted that people don’t borrow for lifestyle. They turn more of their income to current consumption, de-emphasizing savings.
“We don’t see any of our youth saving anything other than if they’ve got a plan at work,” says Honomichl. “We do have a lot of Simplified Employee Pension IRAs being opened by farmers, who are able to put money away there. But as far as seeing other individuals saving, they’d rather keep their funds in a checking account for the liquidity. When CDs mature, they’ll roll it into a checking account—because of interest rate levels—and they’ll more likely use those balances to buy a car as to save.” She adds: “Many young people want what we have now, now. They want to start where we are now, not realizing what our generation went through to get there. That’s a tough one.”
One interesting sign, says Honomichl, is an ad she saw recently for Dave Ramsey, the popular radio and internet pro-savings, anti-borrowing “evangelist.” Ramsey’s “Financial Peace University” began offering sessions in her market. “I’ve never seen that before, here,” she says.
In Cole’s community, primarily a low-to-moderate-income area, she says that, historically, wealth has not been passed on from generation to generation, which inhibits later generations from advancing beyond predecessors’ levels of economic accomplishment. Cole wants to help change this pattern, but is up against the demands of current necessities.
“Some of this has to do with coming out of the economic downturn, or still being in it,” says Cole. “Many families with single-household incomes’ chief concern is getting the bills paid. We’re trying to teach them how to budget, and then to make savings part of that budgeting process.”
Cole’s hope is to help more members of her community turn income into wealth through savings, in order to keep money in the community and to pass something to future generations.
“We’re trying to catch them midstream and say, ‘Let’s stop the cycle,’” says Cole.
Glenn Buddin of South Carolina’s Blue Ridge Bank worries that for many Americans, there just isn’t enough money to spread around sufficiently to have long-term savings. Even at his own bank, he says, where he pays above-average salaries for his market, he sees difficulty in saving.
“By and large,” says the CEO and CFO of the $99.4 million-assets bank, “I don’t think anybody, not just young people, has the money to save for the long-term. They do not get paid enough; period. Not enough to be able to save enough to be able to live even a modest lifestyle when they get to retirement—and most of them are going to live a lot longer than folks are living today.”
While lifestyle choices play a part, essential expenses also dictate some of the problem, says Buddin. Employees with pre-school children, especially those in single-earner households, face day-care expenses that suck up earnings. He adds that he knows that in spite of the higher-level salaries that Blue Ridge pays, there are employees whose expense levels qualify them for certain public assistance, such as Medicaid. His bank provides profit-sharing, which provides some forced long-term savings. Without that, he says, many wouldn’t have any form of long-term money put aside.
Is this state of affairs baked into the nation’s future, with all the potential risk of a country whose future old folks will outlive their savings? A couple of the bankers point to personal knowledge of younger people who buck the trend, who tend toward saving, even, perhaps, toward “extreme” saving.
Wedbush’s Racusin, for instance, says his own children, as well as some of their contemporaries, have seen how many of their friends have not obtained jobs out of school. Having gotten jobs, he continues, those fortunates now vow not to let the income slip out of their hands easily. “They’ve become fanatical savers,” he says. “They save for everything. They save every dime they can, even planning vacations and saving up. They saw what happened to friends after college and are taking the opportunity to protect themselves.”
Sound Community Bank’s Stewart points to a nephew in his late 20s, who “must have nine savings accounts,” each of which is apportioned to a different purpose. The young man methodically puts money into each account.
Looking back over her own life—beginning as a bank messenger and working up to being a teller—she learned the value of a dollar when she needed every one she could raise. As a young Navy wife, she worked to save for a down payment on a home.
“We have to catch people and help them to understand where they are in their lifestyle, so they focus on savings at the appropriate time,” explains Stewart.
Reflecting on her nephew’s slew of accounts, Stewart shrugs and looks at the overall result: frugality and commitment. “Works for me,” she says.
Savings and the older generation
A paradox Glenn Buddin sees is the older generation, more inclined over their younger years to save, had fewer options and frequently went with CDs. Those savers have found themselves with today’s low rates. Younger savers have many more options to build lifetime savings, and they are more willing, typically, to take risks.
But a concern of many of the bankers is that the older generation, having not realized the financial security they counted on, are being targeted by those who would take advantage of their losses and their fears.
Many seniors are not financially savvy, and fall prey to scams. Brian Thomas says there is an attorney who puts on seminars to scare seniors about the state of Medicare, trying to convince them to “take $100,000 out of the bank, in cash, and put it under the mattress.” Citizens Savings Bank’s Cole says longstanding scams requiring recipients to send money to claim “winnings” in nonexistent lotteries continue to snag victims.
Buddin sees this as well. “And they’ll get mad at you for telling them it’s a scam,” he says. “I’ve had them get so mad, they close out their bank account.”
Even when not cheated, seniors have been misled.
“My biggest concern is that seniors are making choices, to get higher returns, that are totally inappropriate for their age and investment profile,” says Stewart.
It’s hard to convince someone who’s been slammed by low returns and depends on those returns that promising promotions seen down at the senior center for 8% or so can’t be for real. Stewart’s bank has started offering a dialog at a local senior community. “We want to get people talking about what they might do before they do it,” says Stewart. “It’s difficult to warn people about an investment when they’ve already wired off their money.”
Banks work with employees, younger adults, and seniors to help guide them to safer saving choices and habits, but what about the youngest customers? How do they begin building better financial literacy now?
ABA has several programs (see below), and banks use these, plus their own efforts, to help. Laurie Stewart, for instance, uses a program for younger students that has proven popular. “We try to get to them around the age of 12,” she says. For high school students, the bank uses another program. “It’s expensive,” says Stewart, “but the schools love it, and it allows us to engage with the high school junior or senior at the right time, in order to bank them. We think of it as an investment.”