Americans’ attitudes about money have shifted as a result of the 2008 Great Recession[i]. Many people either experienced financial hardships firsthand or saw loved ones struggle, making financial literacy more important than ever. Fast-forward nine years, and those financial conditions are still affecting money management methods used by many today.
In this post, we will shed some light on how a many Americans are managing their money, and what you can do to safeguard your personal finances.
Spending less and saving more is a financial priority for most Americans. According to a recent Gallup poll, 59 percent of people report that they enjoy saving money more than spending it[ii]. In fact, 27 percent of people say that spending less money, and saving more is their “new normal” money management practice. Of those who are currently spending more money than in previous years, two-thirds responded that the change in their spending patterns is only temporary, implying that they will revert to saving more when they are able.
While 85 percent of Americans say they are watching their spending very closely[iii], 56 percent of households have at least $15,000 of credit card debt, according to the National Foundation for Credit Counseling[iv]. At an average interest rate of 15.59%[v], this means that a majority of households are at a minimum paying in excess of $2,243 a year in credit card interest. Credit card debt and accumulating interest on that debt can interfere with savings, so it is important to pay off debt as quickly as possible.
A majority of a family’s income is spent on three essential categories: housing, transportation, and food[vi]. To follow the mantra of saving more, moving may be one way to free up additional funds, as the average person spends 32 percent of their income on housing alone.
Investing can be an effective way to grow savings over an extended period of time. There are several types of investment accounts that are solid options based on your financial goals, including a variety of IRAs (individual retirement accounts), as well as non-retirement brokerage accounts offering stocks, bonds, mutual funds and exchange-traded funds. However, most people are not currently leveraging this money management tactic.
The 2017 TIAA IRA Survey reveals that only 31 percent of Americans have any type of IRA, but of those, only 5 percent fully utilize the benefits by contributing more than $5,000 annually to their accounts. Approximately 45 percent of people do not have any type of IRA because they either don’t understand how these accounts work or find them too complicated[vii].
According to Bankrate’s Money Pulse survey, 52 percent of people are not taking advantage of stocks or stock-based investing at all[viii]. Not having enough to invest is the most common reason for the lack of investing. A major misconception about investing in stocks is that one must invest large amounts of money at a time, when in fact, steadily investing smaller amounts of money over time can be an effective strategy.
Taking the time to research investment options or consult with a financial advisor to better understand investing could empower many Americans to efficiently grow savings for large purchases and retirement.
Tips to Manage Your Money
To improve your financial literacy and money management skills, here are a few tips to consider:
- Create a budget. Look at how much money you have coming in each month, and allocate funds for known expenses, such as mortgage, groceries, phone bill, and car insurance. Next, set aside funds for a savings account that you can access in case of an emergency, such as an unexpected medical bill. Any money leftover can then be used as discretionary income
- Pay off debt. If you carry credit card debt, try to pay more than the minimum payment each month in an effort to pay it off completely. As mentioned earlier, debt and interest from that debt can cut into potential savings.
- Look at investment options to grow retirement savings. Research investment options that can help grow your retirement savings. Remember that it doesn’t take a lot to begin investing, and that you will reap the biggest benefits of starting early, and investing over time.
- Consult with a wealth advisor. A financial advisor can work with you to create a financial plan that is easy to follow. A qualified advisor can help ensure that you have money going into savings and investment accounts that will work for your financial goals, including buying a house or retiring by a certain age.
[i] Gallup Poll. May 2017. “Americans Still Say They Like Saving More Than Spending.” Web log. Gallup. http://www.gallup.com/poll/209432/americans-say-saving-spending.aspx?g_source=ECONOMY&g_medium=topic&g_campaign=tiles.
[ii] Gallup Poll. May 2017. “Americans Still Say They Like Saving More Than Spending.” Web log. Gallup. http://www.gallup.com/poll/209432/americans-say-saving-spending.aspx?g_source=ECONOMY&g_medium=topic&g_campaign=tiles.
[iii] Gallup Poll. May 2017. “Americans Still Say They Like Saving More Than Spending.” Web log. Gallup. http://www.gallup.com/poll/209432/americans-say-saving-spending.aspx?g_source=ECONOMY&g_medium=topic&g_campaign=tiles.
[iv] National Foundation for Credit Counseling. “More Than Half of Households Surveyed Have Credit Card Debt Over $15,000.” 2017. Web log. National Foundation of Credit Counseling. https://www.nfcc.org/half-households-surveyed-credit-card-debt-15000/.
[v] CreditCards.com Weekly Credit Card Rate Report. “Rate survey: Average card APR rises to all-Time high of 15.59 percent.” 2017. Web log. CreditCards.com. http://www.creditcards.com/credit-card-news/interest-rate-report-32217-up-2121.php.
[vii] Teachers Insurance and Annuity Association of America. “2017 TIAA IRA Survey.” 2017. Web log. Teachers Insurance and Annuity Association of America. https://www.tiaa.org/public/pdf/ira_survey_executive_summary.pdf.
[viii] Bankrate Money Pulse Survey, “Did you miss the stock market rally? You’re not alone.” 2015. Web log. Bankrate. http://www.bankrate.com/investing/did-you-miss-the-stock-market-rally-youre-not-alone/.