Savings forecast: It will always rain
Last updated: Thursday, July 3,
2014, 12:17 AM
SAVING FOR AN emergency is supposed
to be the key to establishing a financial safety net. Yet studies continue to
show that people aren't putting their money away. The latest evidence comes
courtesy of Bankrate.com, which on a monthly basis takes the pulse of how
secure people feel about their personal financial situations.
Those of you who save and do it as
easily as you breathe might not understand why having an emergency fund is
still an issue for so many people. Nonetheless, 26 percent of Americans have no
savings cushion, according to Bankrate.com. An overwhelming majority of
Americans don't have the recommended six months of living expenses saved.
And who are the worst at saving for
that rainy day?
Bankrate.com found people between 30
and 49 are more likely than any other age group to not have an emergency fund.
Here's something that surprised me
about the latest savings results. Young adults are more likely to have at least
five months of living expenses saved.
Yes, you read that right. The
millennials, those aged 18 to 30 who we older folks complain are too entitled,
are actually saving. But for good reason, says Greg McBride, Bankrate.com's
chief financial analyst.
"They tend to have lower
expenses," McBride said. "They don't have to put away as much because
they are likely living at home with their parents or have roommates. People 30
to 49 are more likely to not have emergency savings because those are the years
they have a house, two or three kids and a dog. But they need the emergency
savings more than anybody."
It's not that people don't know they
need to save, especially with the Great Recession a close memory.
"There has been an attitude
shift," McBride said. "People recognize they don't have enough
savings and know they aren't making progress. Savings is a consistent sore spot
with consumers when it comes to financial security. But nothing helps you sleep
better at night than knowing you have money tucked about in the event of
unplanned expenses. Savings provides a critical buffer between you and high-cost
debt or other financial distress."
Understandably, one obvious reason
people don't have enough money saved is because they are struggling to cover
their basic expenses.
But there's another barrier to
saving.
"Americans have fallen out of
the saving habit," according to a recent report by Oxford Economics
sponsored by a group of financial and public-policy organizations.
Even before the recession, the
savings rate in America was pitiful. It's better now at almost 4 percent but
still not good enough.
"Projecting the current rate
forward, and adjusting only for the aging of the population, we found that the
saving rate will fall to an extremely low 3 percent in the 2030s," the
report noted. "If Americans are not able to save a significant amount of
financial capital, millions of working households will have to choose between
working much longer, accepting a lower standard of living in retirement - or
running out of money altogether."
I get so frustrated when people say
they've saved up for their summer vacation even though they will admit to not
having any emergency funds or very little. You aren't entitled to a vacation
until you have a cushion for the things in life that happen - a major car
repair, a broken air-conditioning system when the temperatures are reaching
triple digits or a family emergency or death. You have to plan for the
unexpected.
"Undersaving at the national
level could also place the economy and government on an unsustainable path,
marked by an ever-increasing external debt that could ultimately undermine
financial stability," the Oxford Economics report said.
Are you alarmed now?
If not, you should be. We've got to
become a nation of habitual savers, which is why I was so pleased to see so
many young adults catching the savings fever early.
I've seen it with my own
19-year-old. She works during the summer and saves pretty much all she earns so
she will have funds for the things she needs during the school year. This past
year, her first year in college, she was always complaining that she didn't
have any money. But she did. She had it in her savings, which she withdrew in a
self-imposed monthly allowance.
"If you can start to save when
your income is low and build the habit when income is low, it will stay with
you as your income grows," McBride said.
If you are struggling with saving,
consider what my grandmother "Big Mama" would always say to encourage
me: "You have to save for a rainy day, because it's going to rain."
