Why Americans Are Skimping On Saving

Garrett Shinn, CPA

Overall, Americans have one of the lowest personal savings rates in the world: a mere 5 percent. Why?

Recent economic trends are part of the problem. Flat wage growth has resulted in less income available for saving. High household expenses have eaten away at earnings. And the rise in student loan debt has significantly tapped down the financial resources of young Americans in particular.

Additionally, borrowing money and living off of debt has become easier and more commonplace in recent years, encouraging people to live beyond their means. This leaves little or nothing to save, and can also result in high fees and interest charges.
Although these trends make saving money more difficult, they do not make it impossible. The other problems, therefore, lie in the attitudes and behaviors of Americans.

The first problem is procrastination, more formally known as the present bias. Americans today are accustomed to instant gratification, and therefore sacrifice saving for their futures in order to consume more in the present. Many Americans believe that much of their discretionary spending is a necessity, not a want, and therefore refuse to compromise their current spending habits.
The second behavioral problem is a lack of understanding regarding interest, known as the exponential-growth bias. In a recent survey, 75% of the participants did not understand compound interest. As a result, these participants did not see the importance of saving now rather than later.

In order to combat these trends and behaviors, one strategy is to view your monthly savings as an expense. If you include your savings in your budget, you will find it easier to prioritize your savings and live within your means, which will prepare you for a comfortable retirement.

If you have any questions, please contact the Shinn & Co team at info@shinnandco.com or call 941.747.0500.