Hope for your financial life and beyond

Guess Which Age Group Is Starting To Save?

Young woman with broken down car

Will you have enough saved if this emergency happens?

You may have seen this article last week in the Wall Street Journal that detailed the current status of Americans and their emergency savings. I probably don’t have to describe to you the article’s tone. Your intuition tells you it was filled with negative statistics.

The study from Bankrate.com showed that:

26% of Americans have no emergency savings…

66% of Americans don’t have the recommended six months of expenses saved…

Those with enough saved to cover expenses for three months shrank to 40% in 2014, compared to 45% in 2013 and…

Only 46% of those earning $75,000 or above have six months of expenses saved.

That last one is especially disturbing. $75,000 is a fine yearly income. That equates to 300k earned in 4 years time, assuming no raises or bonuses. Throw a tax refund or two in there and you are telling me 54% of the people in this situation can’t save six months of expenses in four years? That’s fascinating.

Of particular note, guess who the most likely savers are turning out to be according to the study?

Young people, ages 18-30 were more likely to have five months of expenses saved. Shocked by that?

Why Are Young People Saving?

The takeaway from the piece was that young people learned a great many lessons from the most recent recession. Of course this demographic could have either experienced the recession first hand or watched as their parents lived through it. Either way, they are being moved to save, perhaps in ways like never before.

Contrast this with those in the 30-49 age demographic, who the study points out are most likely to have no emergency fund. Greg McBride, Bankrate.com’s chief financial analyst notes that is particular alarming “because those are the people with a house, two cars and a dog…” In other words, the people with the most to gain (or lose depending on your perspective) aren’t adequately prepared for an emergency.

Wonder why that is? Maybe it’s because they’ve overextended themselves with the house, two cars and a dog. That can easily happen. Families get so intent on living the American dream they will stop at nothing to achieve that lifestyle.

There is nothing wrong with having nice things. I must ask though, at what cost? These families are mortgaging the future so they can find pleasure in the present.

It will be tougher to convince 30-49 year olds to depart from their all-thrill-no-save lifestyle. But if the 18-30 demographic can develop a penchant for saving, think how that might revolutionize personal finance for the next several generations. As they model saving their children will pick up on it. Hopefully the kids will see the value in their parent’s wise money management practices and reproduce it in their own lives.

In another 20+ years, an America where 90%+ of people had six months of emergency cash on hand would be a vastly different landscape.

On A Positive Note

Another way to read this study is that 74% of Americans have something saved for an emergency. That’s at least a start. We know emergencies are going to come sooner or later. Even if you simply have $1,000 saved it will go a long way in stamping out those fires.

If you are in the 26%-no-emergency-savings-crowd get started today. Develop some personal spending discipline. Sell some stuff, cut back on unneeded expenses, or get a short-term, part-time job. There are plenty of ways to build an emergency fund.

Do anything (short of compromising your integrity or the law) to get a financial cushion. You can’t imagine the peace that comes knowing there are cash reserves set aside waiting to fill a need.

Why do you think young people are saving more than the 30-49 year old demographic? Is lifestyle inflation only to blame? Where you live, would a salary of 75k/yr. be enough to eventually save six months of expenses in four years? When and for what did you last use your emergency fund?

Image at FreeDigitalPhotos.net

Next Post: Debunking a Few Home-Buying Misconceptions

Prior Post: How to Play the “Take This Money – No Thanks – I Insist” Game

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Comments

  1. TheBudgetsandTheBees says:

    I think younger people are saving more because their version of the American dream looks different. Instead of working for 40 years in middle management to fund two luxury cars and a huge house in the suburbs, the younger generation seems to want to freelance, travel and live a more mobile lifestyle.

  2. It’s so great to hear something positive about my age group for once, haha! I do think watching my parents go through a ton of financial crap directly impacted how I view my money. Hardships have a funny way of bringing something positive to the table.

    • I just hope this age group doesn’t forget how tough it was on their parents. Success has a way of helping us forget about the quality lessons we learned in the past.

  3. It’s interesting how the pendulum shifts. We are not in the 30 – 49 age group but did have the same savings and spending habits which we are now reversing. The interesting thing is that the government is always promoting to spend the country out of a recession which is counter what one might want to do as an individual wanting to have a buffer fund.

  4. Wow – good news here for the younger crowd!!! I’m not surprised by the stats in the 30-39 age group – they (and we in the 40-49 age group) are so used to simply living in the moment that many of us, I believe, are in complete denial about savings, debt and retirement.

    • Hopefully there will be some follow through and this isn’t simply a short time event. It would be great for the country if they kept at it and passed these values on to their kids.

  5. This doesn’t surprise me. I was in college during the recession, and I witnessed family members getting laid off and worrying about job prospects. I knew if they were worrying, that wasn’t great news for me. I made sure to save whatever I could, knowing a good job wouldn’t be guaranteed out of college. Things seem to be more uncertain with the workforce than they were for baby boomers, so I guess they didn’t really have a reason to worry back then.

    • So you were one of those with first hand experience of seeing family members worry. It seems that left a big impression and caused you to rethink your spending/saving patterns. A tough situation for your family members no doubt, but a good lesson for you to see and learn.

  6. I can only guess that it’s because we grew up in our 20’s and 30’s with secure jobs and even if you lost your job or moved, you could always find another one. I think I had that mindset when I was laid off. I had a healthy savings but I blew through most of it because I just expected that something would come my way. As you can guess, it didn’t, so then I was forced to try and save money on half the income I was making before. Much harder. That’s just my guess.

    • “…I just expected that something would come my way.” I think that is a common mentality. We expect things to drop in our lap instead of doing our part to pursue something. Something is much more likely to turn up if we are taking an active role in the job pursuit.

  7. Where we live $75,000 is a good salary. I think one good thing that came out of the recession is maybe younger people have seen can happen when you live paycheck to paycheck. Hopefully they will be more prepared for the next recession.

    • “…live paycheck to paycheck.” People have to break out of this cycle. It completely holds them back from moving their financial lives forward.

  8. Shannon says:

    I think it is more life than lifestyle as to why people in their early 20s are saving more than people in their early 30s. Most people by early 30s own a home, have children and possibly because of children only have a single income household. It is not impossible for them to save, but definitely difficult with all of those expenses. People in their early 20s know they need to save to even have the hope of a home, children, etc.

    • It seems to me that couples fail to take advantage of the time just after marriage and before the kids come. It would seem that’s the time they could really save, especially if both are working.

  9. It sort of gets under my skin when the $75k income is used. It’s used for happiness and savings benchmarks. But what if you have $200,000 in student loans? I don’t have six months saved b/c I’m doing the debt snowball and paying off my loans first.

    • “…I’m doing the debt snowball and paying off my loans first.” I think that’s a wise move Natalie. The debt is the bigger issue. I would counsel someone to pay off debt first before building up the six months.

  10. We make well over 75k and don’t have 6 months expenses saved. For awhile we did and then life happened – we don’t actually earn enough with two kids and our massive student loans to be able to recover that savings. Paycheck to paycheck on six figures ONLY because of student loans (no credit cards) and daycare costs. The bright side: one daughter will be out of daycare in a two years and then we will feel like we are rich!

    • If you can’t get six then I’d at least shoot for one month and have that as a buffer while you are paying off the school loans. Once that is done then boost it up to six. The debt is a bigger deal to take care of but life is gonna happen as you say. Without an E-fund, you’ll just build up more debt to handle those emergency situations.

  11. I’m always surprised when people say they don’t have enough money to float their bills for next month if something were to go wrong. This would scare me so much!

  12. Cashville Skyline says:

    I’m right on the edge of two of these groups, so I think I have a handle on both perspectives. I graduated from college in 2006. Students who entered college or graduated around 2008-2009 have had the recession and an extremely tough job market to deal with. It’s like how our grandparents got into the habit of saving from growing up during WWII. Or knowing about the Great Depression.

    • “WWII…Great Depression…” Those are good comparisons. Anytime there is a dramatic national/world event it changes people’s perspective…at least for a little while.

  13. I wouldn’t get my hopes up about the 18-30 group’s saving habits being passed on to succeeding generations. This seems fairly cyclical (see: Greatest Generation –> Boomers –> Gen Xers, arguably a downward progression from savings fiends to spendthrifts).

  14. It doesn’t surprise me at all that the Gen Y numbers are that well off. I think you’re right on that they’re seeing the fall out from the last recession and are motivated to save because of that. I don’t know if lifestyle inflation is solely to blame for the older crowds. I think part of it also goes back to they’re used to what they have and they don’t want to change that. As far as $75k in Omaha, where I live, you could definitely come up with a fully funded EF with that within four years. We’ve managed to do it and a few years we were lower than that number.

    • “…used to what they have and they don’t want to change that.” I think that is a big part of it. Once a person is set in their ways it’s a lot harder to change those patterns/standards of behavior.

  15. FI Pilgrim says:

    Those are actually somewhat encouraging statistics, considering the horrific savings levels that we’ve seen in the last decade. I worry, though, that the recession has scared a lot of young people out of investing in the stock market, because they’ve seen people “get bitten”. Hopefully they’ll be able to leverage their savings next time a recession comes around and invest in a depressed market!

    • “…the recession has scared a lot of young people out of investing in the stock market…” I believe that is entirely true and will haunt a whole generation of investors.

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