A study shows that the savings rate of young Americans is rapidly declining, a trend that is raising concerns among financial experts. Organizations are making efforts to promote financial literacy and encourage people to develop better saving habits.
According to the latest survey by the financial services company Empower, over 21% of Americans lack emergency savings – funds set aside for unexpected expenses like medical bills, job loss, or other financial emergencies. The median emergency savings for Americans is only $600, far below the recommended amount that experts suggest should cover three to six months of expenses.
Baby boomers (aged 61-79) and Generation X (aged 44-60) have the highest savings, with median amounts of $1,000 and $868 respectively, while Millennials (aged 28-43) and Gen Z (aged 13-28) have the lowest savings, with median amounts of $500 and $200 respectively.
The report highlights that high monthly expenses and economic challenges are the main factors affecting Americans’ ability to save. Additionally, high outstanding credit card balances are also hindering their ability to save for emergencies.
Although many young people are striving to build emergency savings, some are allocating a significant portion of their income to discretionary spending – which typically includes non-essential expenditures like dining out, traveling, shopping, subscribing to services like Netflix, or purchasing luxury items.
A new study by the business intelligence company Morning Consult revealed that a significant number of Gen Z adults have higher discretionary spending compared to other generations.
According to the study, 23% of Gen Z adults’ expenses are for discretionary spending, and 61% admit to overspending – with many accumulating debt for the sake of “feel good” purchases.
William Hubbard, a registered financial analyst and CEO of Michigan-based Cirrus Capital, told the Epoch Times, “For them, saving enough money is impossible, so they simply don’t save.”
Meanwhile, Thomas Rudzewick, President of Maspeth Federal Savings in Queens, New York, stated that convenient shopping apps are making it harder for young people to save.
He told the Epoch Times, “The problem is that today’s young people have too many opportunities to spend money because their phones serve as banking centers. The ease of digital transactions has not necessarily translated into savings capabilities for young individuals.”
This lack of saving habit is not only confined to emergency funds – financial experts warn that it could have long-term implications on retirement security.
A 2023 YouGov poll found that over 60% of Gen Z and Millennials either haven’t saved for retirement or have savings of less than $5,000, with 43% of adults lacking confidence in their retirement preparedness.
Hubbard stated, “This mindset hinders their ability to meet future post-retirement needs. Parents should teach children to develop wise financial habits, ones that parents wish children would learn early on.”
Jake Falcon, CEO of Falcon Wealth Advisors in Kansas, specializing in retirement planning, said, “These findings highlight significant gaps in financial knowledge among young people.”
“Many young individuals may not fully understand the importance of starting retirement savings early or the power of compounding, leading to delayed savings and inadequate retirement readiness.”
Michael Ashley Schulman, Managing Partner and Chief Investment Officer of the diversified family wealth office Running Point Capital Advisors in Newport Beach, California, stressed that these surveys “serve as a good reminder to young people to start saving early rather than procrastinating, to benefit from long-term investment returns.”
Another major obstacle facing young people is student loan debt, which severely hampers their ability to save for the future.
Last year, educationdata.org found that 13.1 million Gen Z and 18.5 million Millennials have student loan debt, with Gen X having the highest average student loan balance at $44,240, followed by $40,438 for Millennials and $22,948 for Gen Z.
Maspeth Federal Savings Bank is addressing this issue through a three-pronged approach, promoting financial literacy among local elementary, middle, and high school students to enhance their financial capabilities and help young people avoid a retirement crisis.
The bank’s financial literacy program, initiated by Rudzewick three years ago at his alma mater, St. Francis Preparatory School in Fresh Meadows, Queens, has developed into a large-scale project involving 10 bankers.
Feasible steps tailored for young people include budgeting. Rudzewick emphasized that without a budget, financial collapse is imminent.
He said, “They will end up in unrepayable debt. Student loans pose a very scary prospect. When we teach financial literacy in colleges, we often discuss the challenges students will face.”
While student loans impose heavy financial burdens, another pressing issue is encouraging employees to utilize employer-sponsored retirement plans.
Schulman added, “Saving in a 401(k) is often a hallmark of self-reliance among Millennials and Gen Zers.”
A study by the TCF revealed that 43% of full-time working Americans do not participate in 401(k) plans, posing a high risk, according to Falcon.
Falcon said, “Many may find themselves financially unprepared for retirement, increasing reliance on the social security system, potentially causing financial strain on families and communities. The quality of life for retirees could be significantly impacted, with many facing financial insecurity, limited resources, and unable to afford basic expenses.”
The original article titled “Young Americans Struggle to Save, Raising Concerns Among Financial Experts” was published on the English Epoch Times website.