57% of Americans have less than $1,000 in their savings accounts, according to a 2017 survey by GOBankingRates. Although each person has different needs and it is difficult to establish the adequate dollar amounts that each person should have in their savings account, it is safe to say that $1,000 seems rather low, considering that an emergency can come up at any moment.
The most interesting finding is that even those with high salaries fail to save money. An incredible 44% of the Americans who earn between $100,000 and $150,000 have less than $1,000 in their savings accounts. The question raised by the survey is why Americans have such meager savings. There are several possible explanations.
1. Americans have easy access to credit.
From student loans to mortgages, young adults find it unavoidable to apply for a credit card. Without exercising some prudence, they rapidly find themselves on the path of huge debt. All their money go to cover late payments, balance transfer fees, and finance charges, instead of ending up in a savings account. The heavy burden of credit card debt, to which the average young adult must add student loan debt as well, makes it very difficult to save.
2. They keep upgrading their lifestyle to keep up with their community.
Even Americans who earn high salaries have a problem with saving money, although their income is more than sufficient for setting aside at least a small sum on a monthly basis. Once they start earning more, people also start to spend more. The extra money that could end up in a savings account end up paying instead for the newest car, a new phone, or an international trip. When everyone is doing the same, this becomes a societal pressure. Keeping up a lifestyle that consumes all their income is one reason why Americans have so little in their savings accounts.
3. They aren’t taught to save.
Being financial savvy and knowing how to manage your personal finances is a skill that must be learned because it does not come naturally to all of us. In the U.S. only a few states offer courses on personal finance in high school, which means that many people are not taught the basics of financial well-being. Dealing with debt, budgeting, and running multiple savings accounts becomes a struggle at adult age.
4. They don’t understand the advantage of compound interest.
Procrastination is very costly when we talk about savings and this is one of the financial lessons that Americans fail to acknowledge. Saving $100 per month for 25 years at an interest rate of just 3% can bring you a double amount than saving the same sum for only 15 years. Each year, your balance can grow at an increasing rate, which is very encouraging when building a savings account. However, failing to appreciate this important financial trick, Americans don’t feel motivated to save and consider small amounts meaningless, even though there is a great potential even in the smallest contributions.
5. They cannot delay instant gratification.
Saving money is the outcome of long-term planning and big-picture thinking. However, most people succumb to the challenges of daily life and the pleasures of the moment and fail to consider the distant future. Most people cannot visualize the lasting repercussions of their financial decisions and don’t impose any restrictions on their spending habits.
6. They struggle with unemployment, illnesses, or poverty.
Among the Americans that have less than $1000 in their emergency funds, there are some whose circumstances are not conducive to saving because of expenses that are outside one’s control. Unemployment and medical issues can consume all the savings of an individual or a family and it may take a while until a proper financial recovery.
7. They have terrible spending habits, regardless of their earnings.
The most common train of thought of some people is that once they get some extra money, they should spoil themselves with it. This is the habit that is most responsible for lack of savings. Without considering how necessary or relevant for their well-being is a new purchase, people fall into the trap of living paycheck to paycheck. Only by being able to fight impulse buying, people can gain financial security.
8. They underestimate the danger of an emergency.
Most people agree that having a savings account is a smart financial decision, yet they underestimate how much money they need to put in that respective account. A few hundred dollars can cover small expenses but can hardly provide peace of mind in case of a serious emergency, such as a medical bill or a few months of unemployment. Even $1000 is better than nothing, but it is a small sum compared to the needs one might have in the long-term.
9. They prioritize the wrong payments.
There are moments when paying all the bills on time becomes impossible, and in these situations, Americans make the most damaging mistakes. Instead of paying off credit products such as credit cards, mortgage, and auto loans, they focus on personal loans, according to data compiled by credit monitoring service TransUnion. The accumulating debt makes it impossible to focus on savings.
10. They don’t find support in their environment.
Although some people are financially savvy and would prefer to be careful about their savings, they might deal with opposition or pressure from their spouses, family members, or friends who have bad spending habits and would rather spend the money as soon as they make them. This creates conflicts in relationships and leads to many disastrous financial compromises.
11. They don’t have concrete financial goals.
Although many are aware that saving money is necessary, they might struggle with deciding how much money to actually save and what to do with them. Without setting some clear goals and aiming to reach them, many Americans end up believing that $1000 is a good enough contribution to their savings accounts. They need to calculate how much money they want to have in case of an emergency or for an early retirement, and how to make sure they will have that money in a set period of time. Creating milestones is very efficient in building up motivation.
12. They don’t set a budget.
Tracking earnings and expenses is a great way to understand where money goes and how to make sure that a certain sum can be directed towards the savings account. However, most people don’t budget and as a consequence, they don’t have a clear understanding on which areas it is possible to cut expenses.