What stops ordinary Americans from developing good savings habits?

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Devin Miller
November 16, 2023

Many Americans struggle to build and maintain substantial savings. In 2022 and 2023, 57% of people in the U.S. had less than $1,000 in their savings, and 33% maintained less than $100 in their savings in 2023. Even though most Americans have trouble saving, building better savings habits is a critical component of financial security.

When you consider that 88% of Americans don’t feel fully prepared for real-world money management after graduating high school, and only 57% of Americans are considered financially literate, these poor savings habits aren’t surprising. 

Whether it’s for emergencies, achieving goals for the future, or ensuring peace of mind, being able to save is crucial. But why do so many Americans struggle with this critical financial practice? There are a number of factors to consider.

7 reasons why Americans struggle to save

The financial culture in the U.S. poses challenges to many Americans’ savings attempts. Here are seven specific reasons why a large number of people have difficulties developing good savings habits.

Limited income and expenses

For many people, the balancing act between income and expenses leaves little wiggle room for savings. The majority of Americans — 60% according to a LendingClub report — live paycheck to paycheck, with no additional funds left over after they cover expenses each month. This leaves few options for saving money. Overcoming this reality begins with meticulous budgeting, eliminating non-essential monthly expenses, and exploring side hustles to supplement income.

Lack of financial education

A lack of financial literacy leaves many people without the knowledge and skills to save effectively. Secondary education has been notably lacking in this area, leaving many high school graduates poorly prepared for managing their money as adults. Many organizations are working to remedy this issue, with resources like:

Consumer culture breeds immediate gratification 

The pull of instant gratification and a consumer-driven culture often overshadows the more practical process of saving. Overcoming this urge to spend involves learning to delay gratification and resist societal pressure to consistently make purchases. Creating a budget that includes “fun money” can help individuals balance saving with enjoying life’s pleasures, while helping eliminate the guilt.

High levels of debt

Debt, particularly high-interest debt, can devour potential savings. According to research from Northwestern Mutual, the average American had $21,800 in debt, excluding mortgages, in 2023 — with credit card debt at the top of the list (28%). There are a number of approaches for managing debt. Tackle your debt head-on using strategies like refinancing or the debt avalanche method where you put your money toward paying off debt with the highest interest rate first. This can help free up more income for savings. It’s important to find a sustainable approach to chip away at debt while simultaneously putting some money away into savings.

Lack of emergency funds

An emergency fund, also known as an emergency savings account, acts as a critical financial buffer in case of financial emergencies. Without it, unexpected expenses can derail savings efforts and put people further into debt. Even starting small, like saving $20 a week or putting a small percentage away from each paycheck, can gradually build a robust emergency fund. Many employers offer employer-sponsored emergency savings accounts, and some even match a portion of the funds their employees save.

Insufficient retirement planning

Neglecting retirement savings for more immediate, short-term needs can have long-term repercussions. When people start saving for retirement early, they can leverage the power of compounding interest. Consider small contributions to a 401(k) or a Roth IRA to start. Retirement may seem far off now, but early planning is key.

Psychological barriers

The way people think about money and savings can have a significant impact on the ability to develop healthy savings habits. Fear, procrastination, and a lack of motivation are common culprits, and many of these experiences stem from an individual’s long-established, often unhealthy, relationship with money. Overcoming these psychological challenges starts with setting clear, achievable goals and celebrating small victories. A positive mindset shift can make a world of difference in savings behavior.

Combating poor savings habits

In addition to the resources mentioned already, there are a number of government-supported programs available to help Americans improve their savings habits. These include:

  • Individual Retirement Accounts (IRAs): IRAs, both Traditional and Roth, are tax-advantaged savings accounts designed to help individuals save for retirement. 
  • 401(k) plans: Many employers offer 401(k) retirement savings plans, which allow employees to contribute a portion of their income on a pre-tax basis. 
  • 529 college savings plans: These are tax-advantaged savings plans designed to encourage saving for future education costs. 
  • U.S. savings bonds: Offered by the U.S. Department of the Treasury, these bonds are a low-risk investment option. 
  • Health savings accounts (HSAs): For individuals with high-deductible health plans, HSAs offer a way to save money for medical expenses on a tax-advantaged basis. 

Understanding and utilizing these programs can significantly bolster your savings strategy.

Taking steps toward improved savings

Improving savings habits is a journey, and it’s important to pace yourself. Work to take incremental steps and recognize that every bit of progress counts. With the right strategies and support through employer and governmental resources, developing robust savings habits is within reach.

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Devin Miller

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