Laura Rowley Money & Happiness

A community of big spenders isn't hard to spot. Just count the number of high-end designer boutiques on Main Street, the luxury cars in the high school parking lot, or the construction crews hammering away at massive home expansions.

Consider a recent headline in Scarsdale Magazine, which covers the affluent New York suburb: "What's the first thing you do after moving into a 6,000-sq.-ft. Scarsdale Colonial? Add on!"

But gauging whether you live in a community of savers is a different thing entirely. It's often an invisible phenomenon -- like trying to figure out if you live in a town where most people have low blood pressure.

Surreptitious Savers

People may be conspicuous spenders and savers simultaneously. But according to The Millionaire Next Door: The Surprising Secrets of America's Wealthy by Thomas J. Stanley and William D. Danko, they're more likely to have a used car in the driveway of a modest home instead of a Lexus and a McMansion, or a Timex watch and Sperry Top-Siders instead of a Rolex and Ferragamo python loafers.

That's what makes a study released last week by A.G. Edwards, the financial services firm, so intriguing. Called the Nest Egg Index, it looks at a dozen statistical factors in determining the top-performing communities based on saving and investing behavior. (Not to pick on Scarsdale, but it didn't make the top 500.)

The highest-ranking states were New Jersey, Connecticut, Minnesota, Maryland, and Massachusetts. The top five communities were Los Alamos, N.M.; Bridgeport-Stamford-Norwalk, Conn.; San Jose, Calif.; Torrington, Conn.; and Minneapolis-St. Paul-Bloomington, Minn. (See the tables at the end of this column for the top 10 results in both categories.)

How the Study Works

The study combined a dozen financial factors and converted them to common scale, with 100 being the national average. Five variables made up the bulk of the weighting: 401(k) plan participation; pension or other retirement plan participation (such as IRAs); investment ownership (stocks, bonds, mutual funds, investment property, etc.); savings in a cash vehicle (such as a savings account or money market fund); and credit card debt.

The other 40 percent was composed of homeownership; property value; mortgage debt; cost of living; household income; net worth; and the community's employment rate. (Most of the data came from Claritas, a California marketing firm.)

"We weighted the home-related [statistics] more lightly because they are not indicative of savings necessarily," says A.G. Edwards financial specialist Sophie Beckmann, a CPA and certified financial planner. "It's part of a nest egg, but we wouldn't consider your home as retirement savings."

Taming Credit Card Debt

So what's the deal with savers in Los Alamos? Thanks to employers such as the Los Alamos National Laboratory, 68 percent of that city's 18,500 residents are in managerial or professional jobs -- scientists, engineers, lawyers, and physicians. The city placed second in the nation for participation in 401(k) plans, pensions, and other retirement plans.

(You'd think that pondering global nuclear catastrophe all day long would inspire a sense of carpe diem; if these guys are saving for the future, maybe the world is safer than we thought.)

Clearly, some factors that build or reduce savings are environmental: soaring housing values, strong employment, or high living expenses. But others -- like credit card debt -- are obviously about personal choice and discipline. Savers in the top communities were "doing well across the board," says Beckmann. "They were keeping credit card debt down, participating in 401k plans, and saving outside of retirement plans."

A Pair of Exemplary Savers

I recently interviewed a New Jersey couple in their late 30s who illustrate why the state tops the study. Parents of three young children, they earn between $175,000 and $200,000 annually -- but said they felt strapped by the high cost of living. (A recent study by the New York Times found that the state's real estate taxes -- the nation's highest -- had grown two to three times faster than income between 2000 and 2004.)

The couple had recently cut back on dining out, take-out food, clothing, and gifts. So where did their disposable income go? Into savings. They'd already socked away $40,000 for college, and were putting another $500 a month into 529 plans.

They'd also maxed out their 401(k) contribution, and had put away more than $90,000 for retirement. In addition, they'd also wiped out their educational loans and one car payment, and carried no credit card debt.

Their only other debts were a mortgage and home equity loan. But even with these loans, they still had roughly 50 percent equity in their home. (It had more than doubled in value since they purchased it in 1999.)

Midwestern Bias

Among the top 50 communities in the study, only six had credit card debt levels that were worse than the national average. According to recent statistics from the Federal Reserve, the U.S. has more than $800 billion in revolving credit card debt -- or roughly $7,200 per household.

Supporting the Millionaire Next Door theory, the states with the most communities in the top 500 list were largely concentrated in the Midwest: Ohio (38), Indiana (36), Pennsylvania (30), Michigan (29), Illinois (25), Wisconsin (25), Iowa (24), and Minnesota (22).

Beckmann, who's based in St. Louis, attributes that to "old Midwestern values. People are a little more in that saver's mentality," she says. "Unfortunately, that's shifting for the country as a whole -- but maybe we're slower to respond in the Midwest."

Beckmann also says that the study was intended to raise the awareness of the importance of saving at a time when traditional pensions are disappearing, Social Security will provide less support than in the past, people are living longer, and savings rates are abysmal.

Financial planners suggest most retirees need 70 to 80 percent of pre-retirement income to maintain their standard of living. But nearly 6 in 10 workers, or 58 percent, have never attempted to figure out how much they need to retire, according to the 2006 Retirement Confidence Survey conducted by the Employee Benefit Research Institute (PDF file). Meanwhile, the same number -- 6 in 10 workers -- said they hope to have a standard of living in retirement equal to or better than in their working years.

Where Do You Stand?

Wondering where you rank among savers? A.G. Edwards' anonymous survey -- the Nest Egg Score Estimator -- takes just a few minutes to complete, and allows you to get a clearer idea of where you rank personally in savings and investing habits.

Here's how the country stacks up in the Nest Egg Index:

Top 10 Communities

Top 10 States

Source: 2006 A.G. Edwards Nest Egg Index