The Real Reason Americans Struggle to Save

Nearly half of households would struggle to come up with $400 for an emergency. And one factor especially contributes to Americans’ inability to save.

The economy has been slow to recover from the recession that technically ended in 2009. Wages have remained stagnant as housing costs have risen, and interest rates for savings accounts have fallen.

But we can’t put all the blame for our bleak financial situations on the economy, new studies indicate — we, too, are at fault.

Twenty percent of Americans spend beyond their means, according to the “Report on the Economic Well-Being of U.S. Households in 2014,” which the Federal Reserve released this month.

The report is based on the Fed’s second annual “Survey of Household Economics and Decisionmaking,” which was conducted in October.

A SunTrust Banks study suggests that one factor — excessive lifestyle spending — is primarily responsible for our inability to get ahead financially.

Even among households that earn at least $75,000 a year, the study found, nearly one-third were living paycheck to paycheck at least sometimes, and 44 percent (rising to 71 percent among millennials with the same household income) cited lifestyle spending as the reason they saved less money than they should.

Eating out, for example, was the No. 1 type of lifestyle spending cited by respondents.

One-third of people polled by SunTrust said their lack of financial discipline has held them back from achieving their goals.

Good and Bad News

Perhaps unsurprisingly, the Fed’s report reflects as much bad news as good news about how the economy and our own spending habits have impacted our financial well-being over the past year and a half.

The Fed’s survey questions are designed to gauge individuals’ financial well-being and monitor their recovery from the recession. Topic areas include housing, retirement planning, access to credit and more.

Key findings include the following:

Economic fragility: The good news is that less than one-quarter of respondents said they or a relative they live with had experienced a financial hardship in the prior year. However, the bad news is that 47 percent said they could not cover a $400 emergency expense without selling something or borrowing money.

Savings and spending: 63 percent of respondents said they saved some money the prior year, but 20 percent said their spending exceeded their income.

Banking and credit: 56 percent of respondents with at least one credit card said they always paid the bill in full the prior year. About one-third of respondents who had applied for credit in the prior year said they were turned down or given less credit than they requested.

Retirement: This is pretty much all bad news. Among people who had yet to retire:

  • 31 percent had no retirement savings or pension.
  • 39 percent had given little to no thought to financial retirement planning.
  • 45 percent of those who planned to retire expected to continue working in some capacity during retirement.
  • More than 50 percent of those with self-directed retirement accounts were “not confident” or “slightly confident” in how they invested the money in those accounts.

If you’re among the Americans overspending on your wants and under-investing in your retirement, try “Fun for Less: 19 Ways to Save on Entertainment” and “A Simple Way to Invest Your Retirement Savings.”

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Stacy Johnson

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