Americans stink at managing and saving their money. Almost a quarter of all Americans have no money saved in the bank. At all. This puts them at risk of going into debt during emergencies or having to go without. Almost half of all Americans have no money set aside for retirement!
To be fair, many of the people who have no bank accounts, no savings and little retirement are struggling to find employment or are working lesser paying jobs. It’s true. But studies of American savings habits show that many middle class and even better-off Americans fall prey to bad money habits that are endemic across the country.
Here are the ten reasons Americans are bad at managing their money. How many of these bad habits do you recognize around you?
Even during the recession, Americans didn’t give up expensive, fancy coffee. During the first year of the recession enough people cut back on drinking expensive coffee that Starbucks itself had to close some restaurants. But as the recession continued, consumers fell back on their old habits and went on buying expensive coffee. How much expensive coffee? Enough that Starbucks continued growing its profits to new heights each year after 2009.
How expensive is that daily coffee habit? Finance experts always delight in haranguing us about how much we can save by cutting out coffee. But the old canard gets repeated so much because it’s true. Putting the few dollars aside that drinking black coffee instead of fancy coffee could save each day can add up. Invested over years it can turn into hundreds of thousands of dollars.
Even more dramatic is the fact that Americans spend some $800 a year on soda and nearly $346 a year on bottled water. In a world were some people struggle to get drinking water that is safe, which most Americans get cheaply via a tap, we spurn it for expensive bottled or prepared drinks to the tune of almost $2,000 a year on average.
Americans now officially spend more dining out than on groceries. This year the money spent by Americans on dining out overtook how much Americans spend on groceries, according to the US Commerce Department.
On average Americans spend $2,000-$3,000 eating out. There’s nothing wrong with going out. Humans are social creatures. However the thousands spent eating out could be redirected toward staying in and inviting friends over, saving thousands of dollars a year. If Americans are now spending less as a whole on groceries than at restaurants, but don’t have any savings, then priorities are out of order.
The average American is shelling out $100 a month on their cellphone bill. 75% of all Americans use a smartphone. While that is great for the makers of cellphones and good news for people who invest in Apple stock, remember that half of all Americans have set aside nothing for retirement.
Read more: 3 Steps to a Cheaper Cellphone Bill
As mentioned in the intro, many Americans don’t have any savings at all. Some Americans are struggling to get by. But overall, the average American who does have a savings account has a balance of about $4,000, according to a Pitney Bowes report in 2011. That’s barely enough to create the 3-6 month’s of expenses that experts recommend a family have in hand.
Americans are just as bad at saving for retirement. Not only are many Americans not saving for retirement at all but the Federal Reserve estimates that the average retirement savings is less than $60,000. That’s about enough for the average American to retire for a couple years. Most seem to be counting on Social Security, but only about 8% of Americans surveyed about social security in a MassMutual Survey about Social Security admit to knowing a lot about how Social Security works. Only 28% of those surveyed passed basic questions about Social Security.
American’s horrible savings rates are even more striking when you consider this: Americans saved as little as 2% to 4% of their income before the recession. After the recession, Americans started saving anywhere from 4%-6%, with spikes of all the way up to 10% in the middle of 2012. But now, as the recession fades away, Americans are back to saving around 4%.
Is there hope? The rate has popped back up over 5% recently. But that’s nothing compared to countries like Switzerland where citizens set aside an eye-popping (compared to American standards) 13%. Or Germany’s 9.7%. On average European countries save 8% of their income.
The average American spends too much on new cars. Not only do Americans insist on driving everywhere, the three most popular cars sold in the US aren’t even cars, but gas-guzzling pick up trucks: the Ford 150, Chevy Silverado and the Dodge Ram. That costs hundreds of dollars extra a year.
More walking, more car-sharing and more public transportation could save Americans a great deal more money. But Americans tend to view public transportation as a last ditch option. As a result the average American spends almost 20% of their budget getting from point A to point B. In Japan, it’s 10%. The UK, 15%.
While Americans live in a larger country and commute more, the average car payment of $471 a year is a lot larger than the lower car payment of a thrifty econobox. Many Americans buy cars as a reflection of who they are and spend aspirational money. Nothing wrong with that if they have it to spare, but since so many have no savings, it’s surprising.
Read more: Ditch that Second Car to Become a Millionare
Average American home is big, and getting bigger. From 1,725 square feet in 1983 to 2,598 in 2013. And it’s getting more and more expensive to build bigger and bigger. The US Census Bureau reports that the average cost of a new home is $292,700. As a result, Americans are spending more and more of their salaries in larger and larger homes that they’re working harder and harder to have to keep. A third of American incomes goes toward housing.
But even if we can afford those homes, Americans actually keep overpaying on them because many Americans don’t want to go through the effort of checking to see if they can save money on their mortgage by refinancing during one of the longest extended periods of low rates on mortgages! An analysis by Credit Sesame found that some 6 million Americans are overpaying on their mortgages by as much as $500 a month because of this.
The average American spends almost $4,500 on family vacations. The average American bank balance is just a bit north of $4,000. That means Americans, on average, could double their savings and become more secure by just foregoing one year of vacation.
Vacations help destress people and reduce workplace stress. But being in financial stress is far more stressful than the one week mental health benefits of a big, expensive, travel vacation. Americans could take half the vacation fund, invest it in more weekend staycation fund, and bank the other half into a rainy day fund that helps them feel more secure financially.
Americans have been paying down credit card debt since the recession hit. That’s good. It’s high yield debt that’s a drag on anyone’s finances. Experts say getting out of credit card debt should always be a priority. The average American credit card debt is a little over $5,200 as of 2014. 44% of Americans had revolving credit card debt in 2009 compared to 34% now. Good job, America!
However, compare that to the Germans who used credit cards in 2010 for an average of $158 in transactions (and rarely carry credit card debt) or the French (little debt and $158 in transaction). Both countries tend to use debit cards linked to accounts.
Are people dressed well enough for your peers. Do someone have the ‘right brand’ and sneakers from a major manufacturer? Do they drive a nice car that everyone will admire or an old car that just keeps running. Appearances are important to so many people, and a lot of money is spent on keeping them up. Yet the cost of having name brand everything adds up. Name brand clothes, shoes, food and high end cars add up and yet Americans live in a world dominated by advertising and pressure to buy brands that are around them constantly. They might be losing a chance to retire well, but everyone agrees they dress nice and have a cool car.
Of course, not all of these ten bad habits are exclusively American. But they are all very common and easy to find amongst Americans. These habiats build up to costing Americans thousands and thousands of dollars a year. Because everyone else is doing them, they become automatic and hard to get out of the habit of doing. But when there is a crisis in savings and people have so little set aside, it’s worth asking, what priorities are we instinctively adopting from the world around us?