There seems to a few reasons why Americans tend to ignore saving. One is laziness while another appears to be that they believe that the economy is basically strong. The recent recession should have shaken any complacency but it appears that it hasn’t. Respondents in several different surveys have expressed their fears that they are not saving enough towards retirement. Whether that starts to translate into saving, and less debt on such things as credit cards, remains to be seen.
Certainly, there is little change between this year and last when it comes to the number of Americans that are saving nothing at all; the figure is around 20% according to Bankrate.com. Further, only 25% are saving more than 10% of their income, and that figure has dropped by three percentage points. The sample incidentally was just over 1,000 people.
The figures are truly disturbing, especially as the Social Security System was never designed to be more than a little assistance in retirement. It could never remotely fully support retirement and as the Fund is reducing, the benefits in the medium term will have to fall unless there is an injection of money from taxation. The Republican Administration is unlikely to agree to that.
Where Is the Problem?
It seems that the main reason why there is insufficient saving is that people are spending all that they are earning. Almost 40% admitted to that. There is a strong argument that they are living beyond their means; perhaps they are using a credit card to fund their lifestyles and therein lies the problem. Those carrying significant balances are wasting money because of the high rate of interest that credit card companies charge each month. They should look at this as a matter of urgency because carrying unnecessary and expensive debt does not make sense. A personal loan is cheaper and can be used to clear the balance completely.
There are three other reasons emerging from the surveys:
- Some respondents admit that they have yet to get around to saving. They may be facing a difficult retirement.
- Others admit that they are currently finding it difficult to meet their existing bills.
- The smallest percentage, but still 13% admit they are struggling with debt. They clearly need a budget and to look at their lifestyle.
Many Americans admit that they don’t have a budget. Businesses regard a budget as an essential part of being successful. They have decisions to make and that requires accurate information. Surely it makes sense for families to live by following a budget, especially if they are finding their spending is taking up all their monthly income, without being able to put anything aside towards a retirement fund or an emergency account? Two thirds of America admits to not having a budget! According to a recent publication by the Federal Reserve, a similar two thirds accept they would not be able to come up with a little as $2,000 if an emergency occurred. Bankrate.com reinforced that by saying that a $500 car repair bill would be a problem.
Today’s Financial Environment
Bankrate.com indicates that Americans are getting more concerned about their finances. Even though the jobless rate has fallen to 4.7%, wages have not risen particularly quickly. While Donald Trump may be seen in some quarters as a president that can get the economy moving forward, there have been economic indicators in recent weeks that there are some real issues to be faced in the economy.
Experian stated that citizens, especially Republicans, were confident that their finances would improve. However, many have yet to take personal responsibility for their financial management and are carrying too much debt to save significantly.
The next few months will be interesting because rates have risen while Trump’s first few weeks have been less than smooth. The culture of taking credit on cards is a costly exercise for those who just pay the minimum on their credit cards. They are building up problems for the future. The significant number who are neither saving at all, or are just saving a small sum are variously foolish, living beyond their means or utterly complacent. There will be a day of reckoning.