Dr. Thia, MPower Co’s Director of Education has about 40 years of teaching adults financial education under her belt. She has taught people about a number of topics from the relationship between health and wealth to retirement planning. In this article, instead of focusing on the blame for why it’s hard to save, Dr. Thia focuses on the research of savings behavior. Use this information to shift your perspective from ‘it’s hard to save money’ to ‘I can, too, save money!’
Reasons it’s Hard to Save Money
After nearly 40 years of teaching personal financial management to adults, I thought I’d heard all the reasons why people do not save for retirement.
“It’s hard to save money.”
“I have too much student loan debt to save.”
“Hey, I had a lot of fun backpacking through Europe in the summer on extra student loan money and I lived in resort-style housing all four years.”
“We were approved for a surprisingly large home mortgage and we used every bit of it for a house we have learned we can’t afford.”
“I’ve got six dogs and three cats and the vet bills really add up!”
“I’m saving, instead, for the wedding of the century for my daughter. She is 2 years old and time flies!”
Recently, though, I was presented with a new one from a couple. “We are counting on the second-coming during our working years so, therefore, it is unnecessary to save for retirement.” A few hours later the couple emailed again, this time their sense of humor showed – “We said that because we thought you wouldn’t know what to say as a response.” They were right!
We tend to blame individuals for not saving. This article will focus on research that can shed some light on savings behavior.
What the Research Says on Why it is Hard to Save
Granted, it is hard to save money. The Center for Retirement Research at Boston College reports that the majority of older workers and retirees (54%) regret not saving more money during their working years.
Some research has come to light that suggests we should be more compassionate. For too many people, it is circumstances beyond their control that derail their ability to set aside money for the future. This research is particularly timely with pandemic concerns.
Employment problems, the researchers found, were the major source of saving regrets for 60 to 74 year-olds in the United States, which historically has had a volatile labor market. Disruptions that interfered with workers’ ability to save included bouts of unemployment and earning less than they were expecting. Early retirements and disabilities also led to saving regrets, as did unanticipated health problems and bad investments.
Keep reading! The second hypothesis they tested was the human tendency to procrastinate. In this part of the survey, individuals agreed or disagreed with various statements designed to indicate whether they were procrastinators, including whether they work best under pressure or put off things they’re not good at. Surprisingly, in this study, it was determined that people didn’t feel as though procrastination was a reason for their failing to save.
What We Can Learn From the Research
First, this research is empowering for us to know about because we can minimize shame when it comes to failing to save. There is no reason to live in the past and say I wish I would have saved more.
Instead, we can use the research as a motivator for focusing on the reality of where we are with savings today and using it to motivate us to save for the future. The research clearly shows that life can happen and being financially prepared for it is important.
Saving for the future, and for unknowns, may be one of the most difficult financial tasks, but it is essential for your future. Get tough! Get saving!
Two Essential Savings Goals
There are two urgent and essential savings goals for every household: emergency funds and retirement funds. Sure, you probably need other funds, as well, like one to replace your vehicle in a few years, a college fund if you have children, a vacation fund, etc. The most urgent, though, are emergency funds and retirement funds. Realize it may be harder than you think it should be to set aside money for a rainy day that you hope not to experience. Plan for the worst, hope for the best.
What about emergency funds?
Twenty-five percent of Americans have no emergency fund at all, up from 21% in 2020. Thirty-four percent have less money in their emergency fund today than they did before the pandemic. About half of all Americans are uncomfortable with their emergency savings. Only half say they have three months or more of family living expenses they could access from savings if they had to.
If the coronavirus pandemic has demonstrated anything, it is that emergencies can happen without a moment’s notice, from job loss to medical bills. Having an emergency fund is life-changing. On a good day, it can reduce your stress and help you sleep better at night. In tough times it can help you survive unexpected expenses. If you want to dive deeper into the topic of emergency funds, head over to this article on how to establish and maintain an adequate emergency fund.
Workers Overestimate their Social Security
I hesitate to write about this in such a short space, because I don’t want you to confuse this title with the notion that Social Security won’t exist when you retire. Americans have only a vague understanding of how Social Security works, and that is why I dive deep into this topic in my online retirement course Richer Retirement.
A new study by the University of Southern California’s Center for Economic and Social Research finds that workers are overly optimistic about their future benefits, which is one reason so many people don’t save enough for retirement. So, what do you think the average monthly Social Security retirement benefit is in 2021?
AARP reports in 2021, it is $1543.
But wait! If you sign up for Part B of Medicare (and nearly everyone does), the monthly premium of $148.50 is deducted, so that leaves $1394.50. But wait! Income taxes don’t go away for retirees and, depending on your other income in retirement, you may want to have some taxes withheld so you aren’t surprised by a big tax bill next April. Do you really want to try and live on this amount of money each month?
The bottom line? Social Security is not intended to be your sole source of income in retirement, or even the majority of your income in retirement. It is designed to be an income supplement. So, it is critical to begin saving for retirement as soon as possible (I recommend the first day of having earned income, and if not that day, then today!).
Rather than focusing on why it is hard to save, rather think in terms of why you can’t afford not to save. Hope for the best, and plan for the rest.
If you found this post on getting over the mental hurdle of it being hard to save money, and you want to prepare for your rich retirement, you’ll love Dr. Thia’s online course called Richer Retirement. If you don’t know how to save for retirement, or know that planning for retirement is important, but don’t know where to start, this online course will walk you through the process from start to finish. Head over to the course page to learn more about the course, what it entails, and to join the waitlist to be notified when the course opens.