By: Jade R. Gardener
In the immediate aftermath of the recession, nervous Americans hoarded cash and were reluctant to spend their paychecks. Many people predicted a long-term shift in spending behavior. With the most recent personal income numbers revealing a steady rise in the rate of consumer spending there is hope that America has returned to the normal that existed before the recessional storm. But is this normal anything to be proud of?
This economic improvement is revealing the flaws of the American economy. The present return of Americans especially those that are both minority and female to their free-spending ways highlights the lack of financial education and the unhealthy need to spend that may appear to improve the economy but actually drives Americans to highly consumer based behavior that results in more the acquisition of debt rather than savings.
Helen Lara, 23 of New York City is a young example of the approach most Americans have towards savings. Ms. Lara recently acquired her first full time job making roughly $30,000 a year. Although she has no college debt, little overhead costs such as a high rent she only has $1200 in savings but no retirement savings, no investments and about $5,000 worth of medical bills and credit card debit attributed to what she calls an early addiction to, “fast retail”, or retail that is trendy and not basic long term pieces.
“I know I should save more and plan for the future but I just don’t know how to plan long term. It is almost as if when I get paid, the money is burning a whole in my pocket and then I spend a majority of it Friday to Monday and live off of scraps throughout the week until the next pay day.”
According to the Pew Research Center, Americans regardless of race, age and income feel guilty that they have a “savings shortfall”. Research relays that most working Americans surveyed believed that they were able to pay their bills and have a “little left over for extras”. These extras over the past decade do not apparently cover savings.
The American disposable income level has increased by $18,000 since 1999 however since then Americans on average only save 5% of their disposable incomes. That means that an American who could $6000 to save yearly would only save, $300. The behavior is across the board from the poorest to the wealthiest Americans. So why are Americans not savers?
“It is all about education”, says, Professor Curtis Dale, adjunct professor of Economics and Monroe College in the Bronx. “When I began teaching my students how money works, it became very clear to me that most of them had not idea how to save. The concept was foreign to them.” One such student was Nikaurys Frias. Ms. Frias, 28, had a job for 5 years and during one of professor Dale’s classes realized she had never been able to save more that $5 or $10 a month. Frias child of immigrants and first time college student realized that she had never been taught how to save. “I just spent and thought that after paying for necessities, that I could not save”, said Frias. During that economics class she was taught professor Dales’s simple method of saving two rolls of quarters every pay day and at the end of a semester she had saved $800 and in 6 years she had saved $8,000.
Phyllis Frankfort Perillo, Founder and CEO of Working in Support of Education (WISE), believes financial literacy and money education especially early on are the keys to success. “Getting into schools, high schools and colleges and have teachers and students who have a strong sense of financial literacy changes how young people treat money.” Presently only 17 of the 50 states have a financial literacy requirement. As a result Ms. Perillo believes this ill equips students around the nation from understanding financial services and being able to negotiate goods and services now and plan for later in regards to retirement. Perillo points out that in America we give access to loans and credit with little planning or education to the awardees, “My father did not have a credit card until he was 70. Today college students have credit cards. That’s a huge difference in maturity and ability to use credit”, says Perillo.
A December 2015 Google survey revealed that most Americans have only $1,000 in savings, of which does not encompass emergency funds. In a country just rising from the ashes of an intense recession, it is worrisome the most nation in the world is filled with citizens not saving for a rainy day, but rather practicing mediocre saving habits. Although America is exiting a recession, research reveals it is approaching a saving crisis in the areas of personal savings and retirement.