Are people putting money into savings? Although some people are quite good at saving money, it appears that most Americans aren't adequately prepared for a secure financial future.
Savings Rates Throughout History: Are People Putting Money into Savings?
According to the Bureau of Economic Analysis, savings rates in the United States ranged from 3% to 7% of disposable personal income from 2004 to 2010. The average savings rate for much of the 2000s hovered around 4%. However, this statistic is a little misleading in that it does not include the equity in American homes or capital gains that people may be using to increase their overall net worth. Although neither of these assets are easily accessible in a time of crisis, they are still a form of savings.
How does our current savings rate compare to savings rates throughout history? In January 1959, the first month statistics of this type were tracked, people saved 8.3% of their disposable income. In May 1975, savings rates reached an all-time high of 14.6%. By November 1981, they had fallen to 12.2% and began the downward trend that has more or less continued until today.
Reasons People Struggle to Save Money
It's hard to pinpoint one specific reason why savings rates are currently so low. Some of the factors thought to contribute to the problem include:
- The easy availability of credit cards has encouraged people to live beyond their means.
- Popular culture encourages people to pursue instant gratification instead of thinking about their longterm financial stability.
- People have good intentions when it comes to saving money, but are often sidetracked by unemployment or other problems.
- Heath care costs have grown astronomically, taking up a larger share of income.
- Families with young children are spending large portions of their income on childcare due to concerns about the quality of lower-cost options.
- Student loan payments are not manageable on the salaries many people are earning and this debt can't be discharged through bankruptcy.
- Modern families consider things like cell phones and Internet access to be a necessity; these expenses weren't part of the family budget in the 1970s and 1980s.
How Much Money Should You Save?
First, you need to have some sort of emergency fund to be able to handle unexpected bills like car repairs, doctor visits from an illness, or unemployment. Ideally, you should have three to six months worth of living expenses saved. At the bare minimum, financial planning guru Dave Ramsey suggests an emergency fund of $1,000 since this will cover many of the more minor expenses that may tempt you to incur additional credit card debt.
After your emergency fund, you should be saving money for retirement. Financial planning experts recommend putting away at least 10% of your income during your 20s and 30s since this gives your money the most time to grow through interest on your investments. If you wait until your 40s to start saving for retirement, you'll need to be putting away much more money to end up with the same results.
Don't Get Discouraged
Are people putting money into savings? For the most part, people aren't saving nearly as much money as they should. However, it's important to keep in mind that any amount of money you can save will be beneficial. Even something as simple as brown-bagging your lunch a few times a week to save $50 a month can help put you on the path to a better financial future. Taking small steps to towards reaching a larger savings goal is a much more productive approach than becoming discouraged and giving up on your savings efforts entirely.