The Great American Savings Crisis


Over the past several decades, our American "Land of Opportunity" has been gradually morphed into the American "Land of Consumption".

With blazing technological innovations, shorter product cycles, increased levels of standardized luxury and planned obsolescence, our country has become one of the easiest places in the world to satisfy whatever your heart desires. While this is great for businesses and certainly helps drive forward our economic growth, it has turned us into a nation of professional consumers.

Unfortunately, our incomes have not kept pace with our increased rate of spending and, in turn, we are (as a a nation) borrowing from the future to consume today. As a result, we are saving progressively less from our paychecks each month and setting our future selves up for a reduced standard of living.

There is genuine concern regarding the trend in personal savings rates among American households, especially when you couple it with the growth in the use of credit by the average consumer.

Check out the trend here in this handy chart from the Peterson foundation:

What are we doing here? We are literally the richest country in the world. Let me lay some perspective on you: if you have a roof over your head and a change of clothes, you are already richer than 75% of the rest of the world. If your household made more than $33,000 last year, that would put you among the top 1% of income earners among the rest of the world.

So, we've literally got all the potential in the world to do good financial things, but we're whiffing big time 'Merica.

Think about this: according to the Federal Reserve, nearly half of all American households don't have the cash to meet a $400 emergency. This plays out anecdotally - how many Payday Loan shops do you drive by now as compared to 20 years ago? It's now a $46 Billion dollar industry...

Clearly, the opportunity is there for most Americans to do great things financially. But, as reflected in the decline in our nation's personal savings rate, we are shirking that opportunity in favor of more and more consumption.

Check out the video we put together on this here:

Let's Change the Story

Come on guys, we can do better. Hopefully, since you're smart enough to be reading this blog, you're already bucking this trend. If not, let's talk about some ways we can change this story. Here are some easy steps you can take to get starting getting on the right path:

Make your essential expenses as cheap as possible, and then forget about them.

Make your home energy efficient, shop for the best possible insurance rates & pick the right deductibles, don't buy too much house, don't buy too much car, and make sure to optimize your tax planning. Essentials, done. We have to spend money on these things, so lets not fret too much. Get it as cheap as you reasonably can and move on.

Automate your savings.

If you can, ideally with the help of a professional, quantify what needs to be saved to reach your big goals - emergency fund, retirement, college planning, travel, vacation home, etc - then set up automatic transfers to save for those accounts. Time those transfers to coincide with your paychecks so that you don't have much of an opportunity to spend it elsewhere.

Fight against "Lifestyle Inflation"

We all have a tendency to increase our spending when our incomes goes up. The problem is, left unchecked, we actually have a tendency to spend a bit more than what we make, no matter what our income level. You cannot earn your way out of bad financial habits. Create the good habits first, and then when you earn more stick to them!

Have a little bit of fun.

The future is incredibly important, but don't forget to enjoy today. Just keep it in perspective. Remember that every dollar you choose to spend now is about six dollars less that you'll have in retirement. Just spend your money on what makes you happy long term. Avoid the cheap thrills - the short dopamine euphoria you get from buying shiny future-garbage.

Teach your kids.

Let's do this the Cubbie way and reverse the curse. Set our kids on a better footing by increasing their financial literacy. I spent more time on this in a previous blog post here.

 

As always, I'd love to help work through your personal situation if you want to connect with me.



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