This week, I have read some interesting articles on earnings and savings for Americans. I thought I would share some of the information with you in the form of questions.
What percentage of Americans say they would NOT be able to cover a $400 emergency expense?
- 17%
- 32%
- 47%
- 75%
The correct answer is 47%, which means for every two people, only one of them could come up with $400 to cover an unexpected expense without using credit.
Of the Americans who would not be able to cover a $400 emergency expense, what is their annual household income?
- Less than $35,000
- Less than $40,000
- Less than $75,000
- More than $100,000
The correct answer is b. The majority of Americans who cannot cover a $400 emergency expense earn less than $40,000.
What percentage of Americans say their spending is greater than their income?
- 10%
- 30%
- 20%
- 60%
One in five Americans, or 20%, say they are spending more than they are earning. Hence, debt is increasing for these folks at an alarming rate with no possibility of paying down the debt without reducing their spending.
Of those Americans who are spending more than their income, what is their annual household income?
- Less than $35,000
- $35,000 to $75,000
- $75,000 to $100,000
- More than $100,000
Surprisingly, Americans earning more than $100,000 are more likely to spend more than they earn. The reason might be due to “lifestyle creep.” As income increases, small spending changes can add up and be hard to reduce or remove.
For example, if both spouses are working, they may decide to hire a housekeeper for $50 to $100 per week. Doesn’t sound like much but over the course of a year, its $2,600 to $5,200.
What percentage of Americans have no retirement savings or pension?
- 31%
- 53%
- 27%
- 60%
Almost one-third (31%) of Americans have no retirement savings or pensions. An even greater number have $25,000 or less saved for retirement. Considering that Americans are living longer and may be in retirement for 25 years or more, it will be very difficult for these folks to maintain their lifestyle in retirement.
What percentage of Americans have no plan to retire or plan on working as long as possible?
- 55%
- 38%
- 67%
- 25%
The correct answer is 38%. The main reason is the prior question. Americans getting close to retirement are realizing they don’t have enough saved to maintain their lifestyle through retirement so they are choosing to continue working as long as they can. Others, however, enjoy working and may “retire” and then change careers or work part-time.
Through the working years of Americans, income increases at a steady pace until retirement.
- True
- False
Contrary to popular perceptions, the greatest income increases happen during the worker’s 20s and 30s. Income increases decrease significantly after age 40 and income growth may even turn negative in the last 10 years before retirement.
The question now, is there a solution to these relatively depressing statistics? The answer is a resounding YES, if you are willing to be disciplined and delay gratification.
- Always spend less than you earn (discipline).
- Save for purchases rather than using credit (delayed gratification).
- Start saving for retirement early (discipline and delayed gratification).
Always spending less than you earn will allow you the extra funds to save for purchases and to save for retirement. Often, we think we don’t have the funds to save for purchases yet we sign up for credit and find we are able to make the payments to the lender. So, if we can make the payments to the lender, we should be able to save the same amount for the purchase and end up paying less for the item because we won’t have to pay interest or finance charges to the lender. Further savings!
Information for this article came from a study from the Federal Reserve of 5,800 Americans of their finances in 2014 and a Federal Reserve Bank of NY study, “What Do Date on Millions of U.S. Workers Reveal About Life Cycle Earnings Risk?” by Guvenen, Karahan, Ozkan, and Song.
Judith Ackland has more than 26 years of experience in accountancy and financial planning, including seventeen years as a CFO of a diverse business. She started Crystal Financial in 2010 to help a wide array of individuals, families, and business owners better understand their finances and how good financial management could help them achieve their goals. Judith has an MA in Professional Accountancy from the University of Nebraska at Lincoln as well as a Certified Public Accountant Certificate and a Certified Financial Planner designation.
