Editorial note: this story is the first in a series, “Right on the Money.” Find other stories to help you build your savings here.
Several surveys show a majority of Americans don’t even have $1,000 in a savings account. But is the system getting in the way?
Experts say we have shifted from a savings culture into a financing culture, and bank fees and credit card interest can really hurt people.
And expenses and taxes and fees are all going up, but wages really are not.
“My students didn’t understand that if you make the minimum payment, you will be paying several times more. Banks are a business, they charge fees, they charge penalties. That’s how they make money. Save your money, don’t give it all to the bank,” said East High School financial literacy teacher Judy Hatch.
Even the experts struggle with savings
Don Milne was no exception.
“At one point, my wife and I had $26,000 in consumer debt, because I was trying to do too much at once,” he said.
He’s the financial literacy manager at Zions Bank and he turned things around for his own family.
“If I could tell you to just do one thing: Make savings a priority,” he said.
Save smarter, not harder
Milne says the system is what it is, but you have to be smarter.
“The average person with a credit card balance pays $3,000 in interest. If you only make $50,000 a year, which is the average income, that’s a lot. Who has $3,000 extra they want to send to a credit card company every year? That’d make a great amount to put in IRA or 401k,” said Milne.
Fees can exacerbate a stressful situation, and if you are in stress you will make poor decisions. That’s why people in poverty often stay in poverty, the experts say.
The system can work for you if you make savings a habit, Hatch says. And it can be set up automatically.
“Set it up for an auto payment,” said Hatch. “The money goes into a separate account so it’s just done, and you don’t have to think about it. Pay yourself first.”
And our system has something incredible called compound interest, where the money you put into an account starts to make more money, and it goes up and up from there.
“Your future self needs to be more important than your current self,” said Milne.
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