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Michelle Singletary on Saving
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. Twenty-six percent of Americans have no savings cushion, according to Bankrate.com. Most Americans don’t have the recommended six months of living expenses saved.
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. But for good reason, said 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,” said 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 conditioner when the temperatures are reaching triple digits, 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.
Re: Michelle Singletary on Saving
Great article to reiterate the importance of building that e-fund!!
Yes!!!!
It is a double edge sword issue.
Trust me, I understand this. However, trying to do any sort of savings in anything that would preserve your principle is a losing proposition. Interest rates on savings accounts, CDs, money markets are all below inflation so even with interest, you're losing money.
Yes, I have an emergency fund, but I do find it annoying when columnists complain that people don't save when if you look at the numbers "saving" doesn't make sense.
As frustrating as it is, it is much better to save than not have those savings. Fortunately we are not in a period of high inflation and low interest rates.