Wednesday, 1 January 2014

The Savings Crisis In America A Generation Of Americans Who Can't Save Money

Recent newspaper stories have reported that the U.S. savings rate is the lowest in seventy three years, that is since 1933. Within the last twelve months, the personal savings rate has actually turned negative. The data indicates that people in the United States are not saving money. So why can't some people save more money? There are several reasons as follows and we will briefly examine each one.
1. Home Equity Loans: People see their homes or condo's as an appreciating asset and have taken money out of them against their paid principal and appreciation.
Many people see their home as a new ATM machine that they can use to make withdrawals. Some people use the money to consolidate their debt which then allows them to take on more debt. Some people use the money to remodel their existing home or buy a second home.
2. Americans are competitive and do not like to think they are falling behind their neighbors in lifestyle. For many if they see a new Ford SUV in their neighbors driveway or a new DISH satellite system or even their friend's children playing with a new Pokemon, Talking Elmo, XBOX 360, Webkinz or Harry Potter book or toy, they immediately want the product and regardless of their personal budget the product is obtained.

3. Attitude/Mentality : For many of the last seventy three years, People who experienced and lived through the Great Depression have remembered this hardship and saved money with a Depression era mentality. Time heals all wounds however, and as the generations have passed into history so has the memory of that suffering. Today, people tend to buy things because it momentarily makes them feel good.
4. Society of Consumption: This is a society of consumption, the advertisement's are everywhere to be found, Television, Billboards, Buses, Taxi's and the Internet. There is certainly no shortage of ideas or opportunities to consume goods or services. These constant images and ideas are more powerful to some people than their limiting cash flow or personal budget.
5. Employer Retirement Plans and 401k Plans: For many years this valuable savings tool required people to "opt in" to participate in Retirement Savings and in many cases the employers matched some of the savings. Because people had to "opt in" many people did not take advantage of the plans. Beginning this year with the new tax law changes, people will be enrolled automatically and will have to "opt out" of these plans not to participate.
6. Many people do not live on a budget : How many times have you heard " I live paycheck to paycheck" or " I spend it before i get it "? Many people do not live on a budget and have no idea of their personal cash flow. This results in out of control charge cards and usually debt consolidation.
To increase the savings rate, people need to budget and have better short term and long term financial plans. They need to avoid the immediate gratification of buying things to make themselves feel good or to consume to keep up with their friends and neighbors. People need to take advantage of the new tax laws to fully fund 401k or other employer retirement plans. They need to stop "spending money before they get it" and to show fiscal discipline in our society of consumption.
James William Smith has worked in Senior management positions for some of the largest Financial Services firms in the United States for the last twenty five years. He has also provided business consulting support for insurance organizations and start up businesses. He has always been interested in writing and listening to different viewpoints on interesting topics.

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