Changing the Way We Save

Although pre-recession Americans spent or consumed much of what they earned, the recession did provide a teachable moment.

In the 1980’s, Americans averaged saving 10 percent to 11 percent of their disposable income. By 2007 the Federal Bureau of Economic Analysis reported that figure dropped to a low of 1.7 percent. Only in 2009, in the midst of a recession that had Americans worrying about their jobs and futures, did the savings rate increase, but only to 5 percent.

It’s a start, but that rate is still less than half of what it was a quarter century ago. And it’s leaving a majority of Americans unprepared for retirement and emergencies.

“Americans are significantly ‘under saved’ as they near their retirement years,” Neiser says. “They’ll need at least 50 percent to70 percent of their pre-retirement income to live comfortably in retirement, and most aren’t even close to having the financial cushion to do that.”

In 2009, only 13 percent of workers questioned in the Employee Benefit Research Institute’s (EBRI) annual Retirement Confidence Survey said they felt very confident about having enough money for a comfortable retirement. That’s the lowest percentage since EBRI first asked the question in 1993 and a 50 percent decline in confidence since 2007.

The recession also taught us the need for having an emergency savings for our financial and psychological well-being. Having a cash nest egg can help consumers better weather the recession, and in the future, it will enable them to avoid accruing debt when unexpected expenses occur. According to the Consumer Federation of America, those with an emergency savings of more than $500 are less likely to worry, lose sleep, suffer poor health and decrease productivity at work than those who have saved less.

“It is the perfect time for individuals to take a hard look at their finances, spending a little less and saving more,” says Beck.

Up Next: Tackling the Little Things

Control spending: If you spend less you'll have more money available to pay down debt and save for the future. Write down your expenses for a month to see where your money is going. You might be surprised by how easy it is to find places to scale back.

Create a debt repayment plan: If you carry credit card debt, write down everything you owe and make a plan to pay it off. Start with small items you can act on right away–it will make tackling the bigger debt easier. Also, try buying with cash only. It’s a sure-fire way to prevent increases in your credit card debt.

Set up auto-savings plans: Arrange with your bank or another financial institution to have a set amount deducted from your checking account to a savings account each pay period. Of the Americans who have been able to contribute to emergency savings funds, automatic withdrawal is the most popular method, according to the Consumer Federation of America.

Boost retirement savings: If your employer offers a 401(k) plan, increase your contributions. If you don't have an employer plan, open an Individual Retirement Account (IRA) and arrange for contributions to be made automatically from your checking or savings account.

Create a long-term plan: Write a list of your long-term goals, such as buying a home or saving for college or retirement. Visit the Life Events section of Smart About Money for concrete tips on accomplishing those goals.

Protect Yourself: Be prepared for the unexpected by making sure you, your family, your assets and investments are insured and fully covered. If you do not have a will, make 2010 the year you establish a life plan.

Find a financial buddy: Share your financial resolutions with a friend, colleague, or family member, and you’ll be more likely to keep them. Find someone else who wants to turn around their debt or cut their spending, and establish a mutual support system.

NEFE operates the site Smart About Money and have developed a series of articles filled with tips to help you make 2010 the year of financial freedom.  You can also find Economic Survival Tips, worksheets and articles focused on financial education related to housing, spending, credit and job change. Follow NEFE on Twitter at @nefe_org.

Plus, you gain more exposure, too! And that’s really why you’re here. To be heard (or read, as the case may be).

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Dr. Alan Singer presents When Mom is on Your Daycare Payroll by Dr. Alan Singer posted at FamilyThinking.com, saying, “Imagine the effect of paying your Mom to be your live-in Nanny for your twin girls like Dave and Kelly did. There is a lesson for kids, in that it’s better care (for the same money) to have Nanna look after you both than to drop you at a Day Care center each day.”

I can totally relate to this one. We’re in the process of choosing (again!) another day care center. We want our children (almost 2 and almost 4) to get the socialization and structured (somewhat) learning that a “pre-K” school offers, but man o man, none of them are close to ideal.

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While an education is a great differentiator, it’s not worth going into debt. Financial aide, scholarships, and very low-interest loans (as a last resort) are all viable means of funding a college education. Consider community colleges for a couple of years and finishing off at a state college or university. Live and eat at home. Commute.

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Dan at Everydayfinance presents New Discover Current Card – Like Spying on Your Kids? posted at Everyday Finance, saying, “A new card out there allows parents to track their kids’ every move. This has mixed implications to consider.”

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Bank Champ presents GMAC Bank Becomes Ally Bank posted at Bank Champ.

Patrick @ Cash Money Life presents Baby Coupons, Free Samples, and Discounts posted at Cash Money Life, saying, “Discounts, freebies, and coupons for baby items – including magazine subscriptions, diaper coupons, and more!”

Silicon Valley Blogger presents TradeKing Review: How Does TradeKing Measure Up? posted at The Digerati Life, saying, “Where should you open a new investment account for your child? I would suggest this brokerage because it has a wealth of investment materials and free tools that you can use once you sign up. It provides an awesome resource for budding investors to learn from!”

I agree. TradeKing is simply awesome. Very low cost, good tools, great resources…

Ryan Suenaga presents Finding Three Dollars posted at Uncommon Cents.

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Nope, not hard to believe at all. No doubt you, like me, know quite a few families devastated by this fact. Drinking and driving too fast are most often the culprits.

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No kidding! But you’re doing your part here. Let’s keep on passing along the “I wish I had known…” advice!

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