We constantly hear that we should be saving more money. So many articles out there report on how Americans are not saving enough.
A quick google search tells me that “64% of Americans aren’t prepared for retirement” (Yahoo, Sept. 2019) and that more that “Fewer than 4 in 10 Americans have enough money set aside to cover an unexpected $1,000 expense” (CBS news, June 2021).
There is certainly a lot of shaming, both intentional and unintentional, behind these messages.
In my experience…
I think back to my 20s when I had recently completed graduated school with a huge (by 1990s standards) amount of student debt. I had an entry level job that provided for my basic expenses but not much more. The student loan payments meant that something as simple as a car repair or a doctors visit required adding to my credit card debt.
It is easy to chastise myself for not saving more for retirement, not buying a home when prices were lower, or for having debt. But, when I consider how frugally I actually lived in my 20s, I can recognize that there was nothing left over to save. My extravagances were things like getting take out once per month, buying sale rack clothes that I altered myself, and going out for a beer with friends (Five dollars for a bucket of bud light…that’s some fancy stuff!)
In my 20s, not defaulting on my student loans meant that I only saved 3% of my salary into my 401(k) account. Paying for continuous repairs on my beater car, allowing me to make it to work in a city with no public transit, meant that I skipped going to the dentist for four years. (Yuck, my poor teeth!) None of these are glamorous choices. I made the best financial decisions I could taking into account the resources I had available.
Who is to Blame?
Many of the reports on Americans not saving for retirement or having an adequate emergency fund are quick to cast blame on the individuals. They depict our society is too superficial or irresponsible and assert we all want instant gratification.
When, however, a difficulty applies to over half of the population, we must consider the real root of the problem. Are people being truly being irresponsible? Or are we not saving because our society not structured to allow people to save money?
One essential factor that is often overlooked is that life is more expensive than it used to be. Above I reference my personal experiences of struggling financially in my 20s. But, that was many years ago. The situation has only gotten worse.
Statistics show us that middle class lifestyles are 30% more expensive than they were 20 years ago. Pew Research Center released a study in 2018 illustrating that real wages haven’t really changed in the past 40 years. Yet fundamental expenses such as college, health care, housing, and childcare have increased substantially in the past several decades.
It’s Just Those Entitled Millennial (Insert Eye Role)
Frequently I see this lack of savings and financial security depicted as a generational issue. The story being told is that millennials are used to living lavish lifestyles and are unwilling to cut back and do without. They refuse to delay gratification in favor of savings and investment.
Recently I have noticed a number of memes circulating that mock this idea. The main gist is that they list a typical budget including a few dollars in Uber eats and pricey coffees. They mix in lines for thousands of dollars per month in student loans, health care, and housing. The punch line is something about how millennial are broke because they buy too much avocado toast.
Clearly, the message of these memes is that the older generations are blaming menials when the problem is the financial structure millennial’s inherited. The statistics I listed above support this. It is easy for us old folks (Gen Xer here) to say “these kids today..” But, the financial reality is that the millennial (and now Gen Z) came of age in a time when salaries were stagnant, college costs increase by 6-8% per year, and housing prices are skyrocketing in many major cities.
There are a laughable number of articles recently on why millennial are rejecting home ownership. I have seen deep dives into the psychology of millennial and their values. An article titled Why you can’t afford a house (Hint: It’s not the avocado toast) was published back in 2017, yet these same arguments about millennial and the economy are still being regurgitated more than four years later.
Let’s consider that, in my own city of Seattle, the average home price is more than ten times the average salary. Additionally, the demand is so high that you have to be able to offer cash with no contingency to have a bid accepted. In those circumstances, how can someone in their 20s or 30s hope to buy a home?
The Myth that Women Don’t Save
We also must to consider the gendered aspects of spending and saving. A frequent myth is that women save less than men because they are overspending. Statistics, however, show that men actually spend slightly more than women. The meaningful difference is that men, on average, out earn women. So, men have more money available to both save and spend.
You may be surprised to learn that women, as a group, save a higher percentage of their paycheck to retirement accounts than men do. But, with the average male’s paycheck being larger, women save a higher percentage, but men are saving a higher dollar amount.
The Racial Wealth Gap
I assume that most of my readers are already aware that we have a substantial racial wealth gap in the United States. As of 2019, Black workers made nearly 15% less than their white counterparts. Though I do not have statistics to support it, I would be shocked if disparity has not increased due to the pandemic.
As with the gender wage gap, the racial wage gap means people of color have less money available to save than do white Americans. And, of course, women of color get hit harder than anyone by these pay imbalances.“You cannot simplify the problem by saying people of color don’t save enough for their golden years. Understanding the systemic racism faced by Americans of color throughout their working lives is crucial to solving the racial retirement gap.” (Kelly Anne Smith, Forbes Advisor, 2020)
Additionally, issues of generational poverty disproportionately affect people of color. If you family has never been allowed to earn high salaries or own property then there is not wealth being handed from one generation from the next. To compound this disparity, younger people of color may be less able to save because of the responsibility of supporting their elder generations.
It is Difficult to Save
Just because you are a man or a Gen Xer does not mean that saving is easy. When we look at average numbers we are including those with generational wealth. We are including the people earning multiple six figures. But, how about the person who is supporting elder generations, the single parent, the person who is disabled? These folks are likely to have even less savings than the amounts reported as average.
The old rule of thumb for budgeting (circa 1981 but still often repeated) is the 50-30-20 rule. This states that you should spend 50% of your income on necessities (housing, utilities, food, transportation), you should save 20% of your income, and the remaining 30% of your income should cover everything else. The obvious problem with this rule is that many people live frugally and spend nearly all of their income on necessities. The idea that someone can save 20% of their income assumes a certain level of privilege.
You’re Not Off the Hook
It is hard to save. Not everyone has equal opportunity. Our country offers minimal financial supports for its people. These are all unpleasant truths. We still have to take responsibility for ourselves and our own well being. If society is at fault we should be doing what we can to contribute to changing society. We also need to consider our own financial futures and what we can do to improve them on a personal level.
My advice is to make sure you are doing some form of saving – whatever you can – if it is at all possible. Saving does not need to mean investing large amounts of money. Instead, These small amounts add up. Even more importantly they allow you to flex you savings muscles and get you in the habit of putting some money aside.
Here are a few ways that you can get started saving money:
- Pay down your debt. This counts as savings. Whether you are putting money in the bank or using it to pay debt you are increasing your personal net worth. If your debt has a high interest rate, like credit card debt, then the faster you can pay it off the more you will have to save in the future because you will not be making such high interest payments.
- Automated Savings. Save just a small amount on a regular, recurring basis. When you can automate a savings it becomes easier to save because you never actually see the money. It does not need to be much. Put 1% into your 401(k) plan. Transfer $25 per month directly from your checking to savings account immediately after payday.
- Save Your Pay Increase. Each time you get a bump in pay automatically invest a portion of it. For example, imagine you get a raise of $1,000/year. If you spend $500 and save $500 you are are saving without any feeling of deprivation because you have also increased your budget.
Clearly saving $25 per month is not going to fund your retirement or a period of unemployment. You should not be sacrificing food or shelter for savings. But, for those who can examine their spending priorities and manage to save a bit more, it is advisable to do so.
I have had many people say to me that they “will never be able to retire, so why even try to save?” I understand the discouragement, but ultimately you are just harming yourself. Every bit of cushion that you are able to accumulate will help you to navigate any rough financial patches that you encounter. We don’t have to think of saving as all or nothing, instead we can think in terms of our own capacities at this point in time.
The Larger Issue
So many of the articles are studies on American savings rates are overlooking the salient issues. Rather than railing at a society that does not care for its elderly and other vulnerable populations, they go the personal responsibility route. Fingers are pointed at all of the individuals who do not have adequate emergency or retirement savings.
In situations like this we need to consider who is benefiting from this framing of the issue. Zooming out makes it apparent that blaming individuals is to the advantage of our government, politicians, corporations, and wealthy individuals. If we are all responsible for our own insolvency then they are not at fault. It could not possibly be the existing policies and laws, or the hoarding of corporate profits. The education industrial complex, the pharmaceutical industry, and real estate developers are all happy to fault the average citizen rather than accept culpability for the negative effects of their sky rocketing costs.
But when people, on average, are not earning enough to adequately save then the problem is systemic rather than personal. We can tend to our own finances to the best of our abilities while also recognizing that much of our situation is not caused by personal failings but by greater systemic shortcomings.