Savings forecast: It will always rain

Saving for an emergency is supposed to be the key to establishing a financial safety net. Yet studies continue to show that people aren’t putting their money away. The latest evidence comes courtesy of Bankrate.com, which on a monthly basis takes the pulse of how secure people feel about their personal financial situations.

Those of you who save and do it as easily as you breathe might not understand why having an emergency fund is still an issue for so many people. Twenty-six percent of Americans have no savings cushion, according to Bankrate.com. Most Americans don’t have the recommended six months of living expenses saved.

Michelle Singletary writes the nationally syndicated personal finance column, “The Color of Money.” View Archive

Bankrate.com found people between 30 and 49 are more likely than any other age group to not have an emergency fund.

Here’s something that surprised me about the latest savings results. Young adults are more likely to have at least five months of living expenses saved. But for good reason, said Greg McBride, Bankrate.com’s chief financial analyst.

“They tend to have lower expenses,” McBride said. “They don’t have to put away as much because they are likely living at home with their parents or have roommates. People 30 to 49 are more likely to not have emergency savings because those are the years they have a house, two or three kids and a dog. But they need the emergency savings more than anybody.”

It’s not that people don’t know they need to save, especially with the Great Recession a close memory.

“There has been an attitude shift,” McBride said. “People recognize they don’t have enough savings and know they aren’t making progress. Savings is a consistent sore spot with consumers when it comes to financial security. But nothing helps you sleep better at night than knowing you have money tucked about in the event of unplanned expenses. Savings provides a critical buffer between you and high-cost debt or other financial distress.”

Understandably, one obvious reason people don’t have enough money saved is because they are struggling to cover their basic expenses.

But there’s another barrier to saving.

“Americans have fallen out of the saving habit,” said a recent report by Oxford Economics sponsored by a group of financial and public-policy organizations.

Even before the recession, the savings rate in America was pitiful. It’s better now at almost 4 percent but still not good enough.

“Projecting the current rate forward and adjusting only for the aging of the population, we found that the saving rate will fall to an extremely low 3 percent in the 2030s,” the report noted. “If Americans are not able to save a significant amount of financial capital, millions of working households will have to choose between working much longer, accepting a lower standard of living in retirement — or running out of money altogether.”

I get so frustrated when people say they’ve saved up for their summer vacation even though they will admit to not having any emergency funds or very little. You aren’t entitled to a vacation until you have a cushion for the things in life that happen — a major car repair, a broken air conditioner when the temperatures are reaching triple digits, a family emergency or death. You have to plan for the unexpected.

“Undersaving at the national level could also place the economy and government on an unsustainable path, marked by an ever-increasing external debt that could ultimately undermine financial stability,” the Oxford Economics report said.

Are you alarmed now?

If not, you should be. We’ve got to become a nation of habitual savers, which is why I was so pleased to see so many young adults catching the savings fever early.

I’ve seen it with my own 19-year-old. She works during the summer and saves pretty much all she earns, so she will have funds for the things she needs during the school year. This past year, her first year in college, she was always complaining that she didn’t have any money. But she did. She had money saved, which she withdrew in a self-imposed monthly allowance.

“If you can start to save when your income is low and build the habit when income is low, it will stay with you as your income grows,” McBride said.

If you are struggling with saving, consider what my grandmother Big Mama would always say to encourage me: “You have to save for a rainy day, because it’s going to rain.”

Readers may write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071 or singletarym@washpost.com. Personal responses may not be possible, and comments or questions may be used in a future column, with the writer’s name, unless otherwise requested. To read previous Color of Money columns, go to postbusiness.com.

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