Dennis Miller (not the one you are thinking of) from Casey Research with some interesting thoughts. I think he is absolutely right about credit cards enabling instant gratification.
The time to think about retirement is not right before you expect to retire. And saying you don’t plan on retiring can be kindof funny and might actually be what happens, but what happens when the world forces you into retirement? There aren’t a ton of places looking to add 65+ year olds to their workforce.
If you start thinking about how you plan on funding your retirement when you are say 30, you will be less likely to be worrying about it in your 50′s and during retirement (given some luck).
Why Can’t Americans Save Money?
By Dennis Miller, Editor of Miller’s Money Forever
For the past several decades, the United States has been the most prosperous nation on earth. Our standard of living has increased substantially, and even those considered poor in this country would be the envy of many throughout the world.
During my lifetime I have seen society go from Dad being the primary breadwinner with Mom staying home raising the children to today, where a majority of marriages find both husband and wife working and the American family has record debt levels. What about savings? No time to think about it; got too many bills to pay. How can that be in the most prosperous nation on earth?
A friend recently sent me an article which quoted some statistics from the Employee Benefit Research Institute indicating that only 58% of us are currently saving for retirement. Sixty percent of those have less than $25,000 and 30% have less than $1,000 saved.
We are seeing lots of articles with similar themes, all pointing out that Americans have not saved for the future and it is going to be a real problem, not only for the non-savers, but for those who have saved as well, because they will be asked to subsidize their less-thrifty peers through higher taxes.
Many will go on to speculate why. The particular article I read discussed the number of folks who have plans like a 401(k) and how few participate to any major degree. The essence is that there are some obstacles to being able to save. While I will not argue with those issues, my personal belief is they are tangential issues at best. If a person is a spender, he will find a way to spend. If a person is a saver, despite the normal obstacles he will find a way to save.
There is more than one type of savings
For many of us, one of our early childhood lessons involves the idea of “saving up” for something. The theory is that we accumulate money in order to buy something we really want. I have seen cases where those lessons translate directly to adult life. I had friend who told me he really wanted a boat. Every Friday he and his wife would get paid, drop the children off at Grandma’s house, and go out with their friends partying at their favorite watering hole. He was proud to tell me that he figured out just how much that partying on Friday night cost, and that he and his wife decided they did not need to spend that money. He quickly added that the money they saved is equal to the monthly boat payment. What really happened? Now on Friday night, they drop their kids at Grandma’s house, go buy a case of beer at the discount liquor store, and go party on the boat with their friends.
I have finally come to the conclusion that saving up for something is truly no more than an illusion of saving. It is really nothing more than a reallocation of expenses. It is like our government wanting to save money by not subsidizing Big Bird, so it will have money to buy more bombs. As a taxpayer, I don’t see my taxes coming down.
Let’s start at the beginning
How should we define savings? “A system where a person, family, entity, or government deliberately spends less money than they take in, putting the remainder away for the sole purpose of accumulating wealth.” There is no immediate, specific purpose for spending that money. It is there for emergencies. In the case of a family, the goal is to accumulate enough wealth for retirement. How much is enough? It would be having enough wealth to maintain your standard of living off the earnings from the accumulated savings.
Don’t do as I do, do as I say
My youngest son will turn 50 next year. He recently asked me how those in my generation were able to save money for retirement. Honestly, most of us were done with childbearing in our 20s. The children left the nest in our 50s. Our wives worked, and I called it “the race to the finish line.” We were in our peak earning years, had more money than ever before in our life, and somehow we managed to save some for retirement. As I look at my definition, we really did not do a good job. If we had, most of us would have accumulated a lot more than we have today.
My son’s response was an eye-opener for me. Most of his peers put off having children until their late 20s or even into their 30s. When they are in their 50s, their children will be heading off to college – and they will be in their highest-expense years. Their race to the finish line is just a few years long. They have quite a different challenge than we did.
If you don’t fix the cause, you don’t solve the problem
I really struggled with trying to determine the real cause behind Americans’ inability to save. I went back and reread many of the articles I had on the subject and kept coming back to the same point. There are certain people who are just true savers. What makes them different than most who just cannot seem to save? My first clue took place in a very odd fashion.
Recently my wife and I went into Walmart, and something caught my attention. A mother had her son in the cart; he was probably not yet four years old. He was carrying on about how he wanted a toy he grabbed off the shelf. His mother said, “No,” and predictably he just screamed louder. His mother then said, “Maybe for Christmas.” At that point, the child raised his voice and screamed, “No, I want it now!” Much to my chagrin, the mother finally gave in. The lady and her son ended up in front of us in the checkout line. She took the toy away from her son so the clerk could scan it and ring up the sale. Then she took out her credit card and paid the bill. Bingo! It hit me.
In 1975 our world changed forever. Up to that point in time, if you had a credit card, it would have been from an oil company, a department store, or something like American Express or Diner’s Club. The cards could only be used at the specific stores that issued them. A very limited number of establishments would accept Diner’s Club or American Express. You paid for your purchases with cash. If you didn’t have the cash, you didn’t buy it – just that simple.
Along came Visa, soon to be followed with MasterCard offering credit cards that would be accepted most anywhere. If you had any type of credit card, there was a good chance you would get – unsolicited – a Visa or MasterCard card in the mail with a $200 credit limit. Thus the concept of “instant gratification” was enabled. The expansion of instant credit has fueled economic booms and changed family values significantly.
When you really look at saving money, isn’t it really a trade-off? It is sacrificing something providing instant gratification for something of greater value in the future. How does an entire generation brought up in the age of instant gratification all of a sudden change and learn how to save? The last of the baby boomer generation turns 50 in 2014. They were taught to buy the biggest house they could because real estate was always going to appreciate. Homes owned by couples in their 20s and 30s are beyond anything their parents could have dreamed of when they were the same age. Want a new car? No problem: you can get a seven-year loan. Most have never been taught to save; they never felt nor saw a real need to do so.
The idea of instant gratification has become so ingrained in the US that it is easily defined as part of our culture as a nation. Noel Tichy wrote a book called Control Your Own Destiny or Someone Else Will. He defined corporate culture as “The unwritten norms, beliefs and values that define appropriate behavior.” It is not what is written in the personnel manuals, but rather just the accepted way things are being done. The definition struck home; it applies to families just as much as corporations. For many Americans, the culture is instant gratification – charge it, and worry about saving sometime later in life.
For those who have not saved nearly enough money for retirement, are they not putting themselves at the mercy of others who will control their destiny? Kinda scary when it’s put that way… particularly when you know that the government is so broke it is printing trillions of dollars on a printing press to try to create the illusion that it is real money. The idea of putting our destiny in the hands of any government is frightening.
So where do we start?
When a corporation or entity sets out to accomplish a change in culture, it is a major financial and emotional event for everyone. It is an attitude and priority change, coupled with a major commitment and behavior change on the part of all people involved. It is the same process within a family.
Within our family, we have some folks who are married who have either always lived within their means and been true savers or they had a “revelation event” that caused them to reassess things and radically change their spending and savings habits.
In those cases, both husband and wife have to come to an understanding of priorities. That is followed by a total assessment of their current debt, spending habits, and lifestyle. The next step is to figure out where they want to be. Then they asked themselves the real question: “Are we willing to learn to defer gratification and give up a lot of stuff that is cool and fun to truly accumulate wealth?” We might want to start by giving a clearer definition of the goal.
In May, 2012, the Transamerica Center for Retirement Studies released its 13th annual Retirement Survey. In a survey of over 3,600 workers, 56% plan to work after age 65, and 54% indicated they would continue working after they retire. The lead paragraph of the press release says, “American workers, shaken by the realities of the Great Recession, have adjusted their visions of retirement …”
The detailed research report offers a new definition of “retirement readiness”:
“A state in which an individual is well‐prepared for retirement, should it happen as planned or unexpectedly, and can continue generating adequate income to cover living expenses throughout his/her lifetime through retirement savings and investments, employer pension benefits, government benefits, and/or continuing to work in some manner while allowing for leisure time to enjoy life.”
The real question is this: Are the perceived benefits in the above paragraph enough to motivate people to change their behavior? Almost all people want to be set for retirement, so they can sleep easy and enjoy the rest of their lives. While the articles tend to point to the majority of folks who are ill-prepared financially for retirement, there still are many who have taken the necessary steps to look after, and be in control of, their own future destiny (one of those steps is to not depend on interest income from CDs).
As a person who is retired, I can say we have many good friends who are still struggling. Most all have confided in my wife and me something to the effect, “If I had a do-over,” followed by examples where they would have managed their finances and priorities differently. It all adds up to the same point – they wish they had taken retirement seriously at a much younger age.
On the positive side, there is something about turning 50 that causes many to stop and reassess their station in life and their priorities. My son initiated the discussion about retirement; he realized that it was an issue that should no longer be ignored.
I confessed to him that I had come to the same conclusion when I was his age; however, I also learned a bit about myself. The best way for me to save money was to put it where it was invested and I could not have ready access to it. I was self- employed, and my CPA put me in touch with a pension consultant. We set up a retirement plan where the contributions to the plan were tax deductible, which gave me a great incentive to save as much as I could. After a couple of years of seeing it grow, our first budget item was the maximum contribution to the plan; we had made the transition and were truly saving.
The easiest way for my youngest son to save money, invest it, and not have it easily available was to increase his contribution to his 401(k). They are able to live on his income. His wife recently went back to work full-time. With the help of Vedran Vuk, we provided him with some charts showing an analysis of increasing his 401(k) contributions and what it would mean over a 15-year period. He discussed it with his wife, called his payroll department, and increased his annual contributions. In addition, they committed to themselves to continue to increase their contributions each year.
What struck me about the survey I mentioned at the beginning of the article was how few folks take advantage of their 401(k) plans. One of the many sayings of my grandfather that took me many years to understand was, “Pay yourself first and learn to live on the rest!”