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Me save? Are You Kidding?

Well-no, I'm not kidding. Really, I'm not. And yes, it is possible for even you to start a savings habit. The thing about habits is that good ones are hard to start and easy to break, (weight control, regular exercise, smiling at people, saving), while bad ones are easy to start and hard to break, (smoking, drinking too much, and being cranky, impulse spending) Most people have to work a little at both setting good habits and getting away from bad ones.

At a time when my wife was struggling with some things related to work, she said, with a great deal of emotion, "NOTHING is ever EASY!" And she was right. Many, maybe even most, of the things worth accomplishing in life are not necessarily easy. So it is with developing good saving habits, and kicking bad spending habits. These two habits, by the way, are "mutually exclusive", which is to say you can't have both at the same time. If you're not much of a saver, the odds are you've also got some shaky spending habits. The better saver you become, the more your spending will be controlled.

If you really do have a hard time pulling together savings-well, you're not alone. I've known for a long time that Americans, as a people, aren't very good at saving their money, and I remember reading some statistics years ago that gave the Japanese savings rate as 20% of family income and the American rate as 5% of income. Things have changed for Americans, and not for the better. Let's take a look at some data about personal savings.

First of all, personal savings is that part of your income that isn't spent on taxes or necessities like food, clothing, transportation, housing, health care, etc. The Federal Reserve Bank tracks personal savings, and if you want, you can go to the Saint Louis Federal Reserve Bank website, www.stlouisfed.com to find the data. I'll summarize some of the information for you here. We'll show decade averages for personal savings, shown as a percentage of income, and then make some observations about what the data tells us.

Decade	Personal Saving Rate
1970s	9.59%
1980s	9.04%
1990s	5.14%
2000 - 2005	0.83%

Notice anything? Right, the personal savings rate has been declining for a while; first slowly, then more rapidly. 1982 was the best single year for personal savings with a rate of 11.19%, and the best single month during these three and a half decades was May of 1975 with an annualized personal savings rate of 14.6%.

Now a look at the readings since the turn of the century.

What do you notice here? A continued decline of personal savings. And no, that last one isn't a typo. The rate for 2005 IS a negative number. So, from 1982 to the present time, average household personal savings rates have dropped from a positive 11.19% to a negative 0.40%.

Now, if - 0.40 is the current average rate, what does that mean? Well, it means that roughly half of American families have savings above the average, and half have no saving at all. (Technically, the mid-point in an array of numbers is called "the median", and not an average, but it's close enough to justify the statement.) Some families will have savings way above the average, and-sadly-some will have negative savings way below the average.

How can anyone have a negative personal savings rate? DEBT.

The Federal Reserve also tracks something called household "financial obligations ratio" which measures debt repayment along with recurring expenses such as rent, auto leases, homeowner's insurance, and property taxes. In a February 23, 2004 speech, Alan Greenspan, then Federal Reserve Board Chairman, quoted the financial obligations ratio for households as 18% of disposable income. That doesn't seem so bad at first glance, but think about it this way. You work about two and a half days a week to pay taxes of various kinds. Eighteen percent is equal to another day's work, which brings you to three and a half days per week of work before you find any discretionary money.

Some other information from a variety of sources:

• From an article in the Sun-Sentinel, a Florida newspaper:
• American credit card debt tops six hundred sixty five billion dollars.
• 2004 credit card debt per household having at least one credit card is $9,312.00.
• Consumers tend to, "...view high levels of debt as inevitable, even a permanent state of affairs..."

From other sources.  Sixty percent of families have reserves sufficient for only one month.  The next twenty percent of households have reserves for three and a half months. While median household income rose ten percent from 1990 to the present, (inflation adjusted), spending rose thirty percent. Most Americans cite finances as their major stressor, and sixty percent worry that they are not saving enough for retirement.

Further, a great many American households have both husband and wife working for income outside the home. I suspect many of those are "budgeted", (if indeed budgets are truly involved), pretty much to the limit of both incomes. What do you suppose will happen should one or the other become ill or lose their job? A lot of things would happen, and none of them are likely to be much fun.

In a nut shell, the average American family doesn't save much, spends a lot, takes on too much debt, struggles to make ends meet, and then worries about money. At the core, their options are limited because they WILL have to pay back debt that is acquired. Endlessly funding a particular life style through debt in not really possible-except maybe for Federal and State governments. The options are to earn more money or spend less money; or better yet, do both at the same time if you can. However, if you begin to earn more money only to spend still more money without paying down debt and preparing for your future-well-take a good long look at your priorities.

So, per the above information, the average American family looks like it's having a hard time financially, but the good news is you aren't the average family. You can make choices that lead you in a different direction. You can control spending, limit debt, and start developing a savings habit. You don't have to start by saving a huge portion of you income either. Rather, set a goal that is manageable for you so you'll succeed; say, five bucks a day, or some small part of your income each pay period.. Put your five dollars a day in your sock drawer until you next go to your bank, and then put it into the savings account you will now open if you don't already have one. Make the whole process conscious, planful, and regular as clock work.

Where will you find the money to save? Track your spending for a week or so to see where the money goes, then find a couple of things that you pay for now but could easily skip without significant suffering on your part. One mocha rather than two each day. Bring lunch four days a week rather than eat out five days a week. Whatever you choose, the opportunities are there somewhere in you spending patterns.

Then there's a change in psychological perspective you might want to practice. Rather than see bringing your lunch or having one less mocha a day as, "doing without", or depriving yourself of something you enjoy, view it more along the lines of building something positive for yourself-and indeed you will be. You'll be building your savings, and once you start down that road, all the destinations are positive ones.

You can be sure we'll talk more about saving in future pieces for the ITS: FYI page because the whole notion is so very important.

arley