Could you scrape together two grand in a month if needed?
A 2011 report from the National Bureau of Economic Research showed that 44 percent of Americans would have trouble getting their hands on $2,000 in 30 days if they needed it.
Nearly half of the country is an unexpected medical emergency or a leaky roof away from financial ruin. Statistics don’t lie – Americans don’t save money. As the nation prospered during the 50s and 60s, people put money away in college funds, rainy day accounts, and for retirement. In the 1970s, the personal savings rate averaged 9.6 percent, but had fallen to 4 percent by 2012.
We spend, but we don’t save. Is it because we have become a narcissistic society only concerned with instant gratification, whether we have the money for that gratification or not? Or, are there other factors influencing our free spending ways? There seems to be five reasons Americans don’t save money, and these five reasons are undermining the financial foundation of our society.
The 5 Reasons Americans Don’t Save Money
It’s a Borrower’s Paradise!
Since the 1970s, easy credit has flooded the market. The use of credit cards exploded and the lives of the American consumer has never been the same. Baby boomers became adults with credit cards and easy financing and have utilized these tools to their maximum benefit…and detriment. However, there are signs that things may be changing.
A new study from the Pew Research Center found that young adults carry much less debt than their parents. Perhaps it was because of the recession, but the debts of individuals under 35 fell by 30% in the past few years. However, during the same time, the debts of the overall population only dropped by 8%. Perhaps the days when Americans will be living on maxed out credit cards is finally coming to an end.
In Financial Institutions, We Don’t Trust
Is some healthy skepticism concerning our nation’s financial institutions a good thing? You bet it is! Financial institutions are out for one thing – your money. Because of this deserved mistrust, many Americans live off the financial grid. Many Americans use check cashing places, money orders, and payday loans stores when they need a cash infusion, but these services cost far more than banks and further erode someone’s dwindling financial reserves.
The Sad Decline of Interest Rates
So many families have benefited from the decline in mortgage interest rates. Without this steep decline, many Americans would have been unable to purchase a home and live the American Dream. But, because of low interest rates, that dream may become a nightmare as they head toward retirement. Why? Because of miniscule interest rates offered by banks, no one puts money away in a savings account. The simple savings account is almost a thing of the past – and it is not a good thing.
When I was a kid, oh so long ago, you could go down to the bank with your parents, open a savings account, and invest your paper route money (usually with some matching funds from your parents). You would get a savings book in which you could keep track of your deposits and the interest you earned. You know what? You could actually, with the magic of compound interest, see money being earned on your tiny account. Even during the 1980s, you could actually earn money, safely, in a savings account as rates were around five percent – they are less than one percent now! Here in 2013, even if you were putting more than paper route money in your savings account, the interest earned is negligible and to see any interest, you would need a magnifying glass.
Investing is a Roller Coaster Ride for Financial Geniuses
These low rates have pushed more people in to riskier investments, and as we have seen in recent times, even so-called “safe” investments in the stock market are no longer safe. As our economy has grown to unprecedented levels, investing has become much more complicated. The stock market is like one extreme carnival ride, far too scary for John Q. Public. Options, derivatives, and other exotic investments seem to dominate the news and make a few people very rich, but understanding them is more difficult than quantum psychics. Since investments seem to be beyond the capabilities of most regular people, they might as well just buy that new flat screen or sports car – it’s better than losing it in the market.
Our Endless Consumer Economy
We are bombarded by advertisements 24/7 to buy, buy, buy, and buy some more. We are constantly trying to keep up with the Joneses, often unaware that the Joneses are maxing out their credit cards to keep up with some other Joneses down the street. You can buy anything and everything you want without leaving the comfort of your desk chair – the Internet has made being a shopaholic easy and private. Not only are we bombarded by advertisements, we also need more things than we used to. My parents didn’t need to pay a cable bill, an internet cable service bill, or need to supply me with a cell phone, a laptop, virus protection and flash drives for that laptop, printers, and iPods. Though baby boomers probably spoil their kids, many of these items are necessary for them to compete in school and are a part of normal middle class society – we just need more things to be middle class nowadays.
These five reasons Americans don’t save money has created instability in our financial markets and in the fabric of our society, but perhaps the next generation may make positive changes. Though our consumer economy shows no sign of slowing down, young adults, by carrying less debt than their parents, may be showing signs of rational financial behavior. Something they could perhaps teach their parents and their elected officials. Could the government scrape together $2,000 in 30 days? Without printing more money, it could be a problem!