In most big cities, it’s easier to save than we think

Piggy bank floating in water

A surprising opportunity exists for millions of Americans to be putting money into savings, even many who don't think they have a dime to spare.

That’s the conclusion of a new study by that looks at the median family income and median family expenses in 18 major metropolitan areas around the United States.

The study, which used data from the Bureau of Labor Statistics, found that families earning the median income in every city but one should have money to save — often lots of money — if they limited their spending to their area's median cost of living.

Yet in every city, the actual median savings rate was a big, fat zero.

We had feared that all of the bad economic trends we hear so much about, from stagnant wages to the rapidly rising cost of big-city living, had trapped urban households in a paycheck-to-paycheck existence.

But these results suggest that many families are also allowing expenses to grow — whether it's by moving to a bigger house or buying a more luxurious car — until their bills consume every dollar of disposable income.

That's actually encouraging. It means we aren't caught in an unwinnable rat race, the powerless victims of economic forces beyond our control.

If median-income families just spend a little more wisely, it looks like they can enjoy an acceptable standard of living and have money to save and invest in their futures. The choice is there to be made.

“We found that, no matter where we live, even in expensive cities like Boston and San Francisco, many of us have a surprising opportunity for saving we aren’t taking advantage of,” says Mike Sante,’s managing editor. “It’s a chance to build financial security we’re letting slip through our fingers.”’s study used 2012 data gathered by the Bureau of Labor Statistics for its annual Consumer Expenditure Survey.

It obtains information on the complete range of consumer expenses and incomes. Spending is broken down into different categories, including housing, transportation, food, health care and other major household costs.

Income includes paychecks, self-employment, pensions and other retirement checks.

The data-crunching was performed by Mike Green of SaeSolved, an Atlantic Beach, Fla., software and engineering company, and statistical consultant Dan Perik, of Oconomowoc, Wis.

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We found that the Baltimore metropolitan area has the greatest savings opportunity.

It has the second-highest median household income at $73,816, and with median expenses of $49,566, that leaves $24,250 that could be socked away annually.

Washington, D.C., has the highest after-tax income at $85,769 but also significantly higher expenses. Still,’s study found that a family with median earnings and expenses had an annual savings opportunity of $19,967, the second-highest among the 18 cities.

Both the Washington and Baltimore metropolitan areas include some of the wealthiest suburbs in the nation. But even less-prosperous cities present a chance for a family with median income and expenses to save.

Retirement Savings Participation

This is the percentage of households that reported adding some money to a 401(k) or IRA account during 2012.

City Participation Rate
Baltimore 35.9%
Cleveland 34.7%
Minneapolis-St. Paul 34.0%
Washington, D.C. 33.7%
San Francisco-San Jose 31.0%
San Diego 22.6%
Boston 22.3%
Dallas-Ft. Worth 21.4%
Seattle 20.9%
Atlanta 18.6%
Detroit 18.2%
Chicago 17.4%
Houston 16.4%
Philadelphia 15.7%
Miami 15.5%
New York 13.9%
Phoenix 13.5%
Los Angeles 13.0%

In metropolitan Detroit, for example, the median income is less than half what it is in Washington, D.C., yet the savings opportunity is $4,189 annually, which is roughly 10% of after-tax income.

Cleveland, Dallas and Houston are further examples of cities that present good savings opportunities, even though incomes are slightly below the 18-city average.

Phoenix was the only exception. Median expenses in that metropolitan area were actually $1,136 higher than median incomes, leaving no money for saving.

Of course, a median savings rate of zero doesn’t mean no one is putting any money into saving. Some people are.

What it means is that the median contribution, the amount in the middle of the range of savings contributions, was zero.

Among our 18 cities, only 1 in every 3 to 1 in every 7 households said they contributed anything to a 401(k) or individual retirement account during 2012.

Where does the money go?

The typical household allows some expenses to expand beyond the median costs for their city.

Take the Dallas-Fort Worth area, for example, where median housing and transportation costs are right at $1,200 and $430 a month.

Median-income families that allow those costs to climb to $1,800 and $600 a month have lost their $770 monthly savings opportunity.

Why do so many households allow their spending on homes or cars or travel to grow until it gobbles up every penny they earn?

Chris Browning, a professor of personal finance at Texas Tech University in Lubbock, says we just don't consider savings a priority.

The first step toward seizing your savings opportunity, he notes, is making it a regular part of your budget.

“When you’re starting a savings program, the habit is more important than the dollar value,” Browning says. “Develop the habit and, if you hold on to it, you’ll find your savings increasing as your income increases.”

Personal finance experts point out our spending habits are also to blame. An understandable desire to feel we are doing as well or better than our peers causes us to mistake luxuries for necessities.

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Richard Serlin, an adjunct personal finance professor at the University of Arizona in Tucson, believes this kind of spending has grown as income inequality mushroomed in the United States.

There are certain items families must have: for example, a house, car, food. But our sense that these items indicate our relative financial status has caused us to spend more on these “must-haves.”

Items such as granite counter tops, top-of-the-line appliances and luxury cars have come to be viewed as necessities, when cheaper alternatives exist.

The desire to keep up has led to “expenditure cascades” we can’t really afford on big-ticket items like fancier homes and cars we feel we must have. “The end result is that these high fixed costs just don't leave much room for saving,” Serlin says.

In the early 1970s, he notes, these must-haves were about 55% of a typical family's after-tax income, and that was with just one spouse working. “By the early 2000s, this was up to about 75%, and that was with both spouses working,” Serlin says.

When first considered doing the study, Sante says he was worried that it would find that a decade of rising prices and stagnant incomes had made saving virtually impossible for the typical family.

He finds the results encouraging in that they show the cost of living hasn't outrun median incomes even in the largest cities.

"Many of us feel like we're living paycheck-to-paycheck because of how we choose to spend our money," says Sante,'s managing editor.

"It's not that we can't save. It's that we don't save. It's something we can control and change."