Last year I had the opportunity to speak with Susan Tompor form the Detroit Free Press. We talked about the debt dilemma most young adults go through: while trying to build savings, young adults may simultaneously be accumulating debt. Take some time and read the full article below:
Ebeth Fielder, 23, has a simple explanation for why many people, particularly those in their 30s and 40s, owe more money on their credit cards than they have in emergency savings.
Think about it. It can take an entire year to save up around $1,000 if you're setting aside twenty bucks a week. It only takes a day to open up a credit card and rack up $1,000 in credit card debt.
Easy credit is an everyday expression; easy savings is not. About one in four Americans are living on the edge by having more credit card debt than emergency savings, according to a study by Bankrate.com.
Younger consumers are particularly challenged when it comes to trying to build savings. Many are juggling the needs of young families, the costs of old student loan debt and the temptations of more hip ways to spend money.
Fielder is the hip "spokester" for the Young & Free program that targets the 18-to-25 crowd at Michigan First Credit Union based in Lathrup Village. And she said many times people just don't realize that they can come up with money for savings in a variety of ways.
Give up the Birchbox, she says. Many young consumers love getting glam bags or monthly, personalized sample deliveries of cult brands for beauty, grooming and lifestyle products. A variety of subscription services are trending with younger consumers who easily pay $10 or $20 or $50 a month.
But after getting married and moving last year from Texas to Michigan, Fielder and her husband needed to rebuild their savings. So she cut out e-commerce subscription services.
"I realized I was wasting my money," Fielder said.
The Bankrate.com survey indicated that 13% of consumers do not have any credit card debt, which is a good thing, but they have zero emergency savings, a bad thing.
"People between ages 30 and 49 are in the worst shape, probably because of the expenses associated with children and paying a mortgage," said Greg McBride, chief financial analyst for Bankrate.com.
For many, the idea of getting a basic emergency savings plan — with enough money to cover three months to six months of bills — can sound as overwhelming as saving a million dollars for retirement.
But Kathryn Bossler, 34, personal finance counselor at the GreenPath Debt Solutions office in Detroit, tells people who are bewildered to just set aside $20 or $25 each week to start.
"Saving something is an accomplishment for many," Bossler said.
Ultimately, some experts say aim to set aside 10% of your income into an account for emergency savings. Too many people live paycheck to paycheck and it's impossible to really predict when you'd need new tires or need to visit the doctor.
Another option: Set aside part of any windfall toward emergency savings. Maybe target $200 or $300 out of an income tax refund for an emergency savings account. Or many in the auto industry who will receive bonuses this year could set aside 5% or 10% of that bonus money for rainy day savings accounts.
One of the challenges that many face when it comes to building savings is that many workers aren't getting the raises they received in the past.
McBride said that stagnating wages have contributed to the lack of savings for many younger families. But some of that may change in the next year or so, as wages gradually improve, he said.
Based on the Bankrate.com survey, about 32% of people between the ages of 30 and 49 said they had more credit card debt than emergency savings. That compares with 21% for those between 18 and 29 and 14% for those who are 65 years old or more.
Having more credit card debt compounds any financial problems.
If you owed $2,000 on a credit card with a 15.76% rate, it would take more than 10 years to pay off that card if you only made the minimum payment each month. And you'd pay an extra $1,330 in total interest, McBride said.
On the plus side, there are some signs that more consumers are making some progress. Stephen Brobeck, executive director of the Consumer Federation of Americaand a founder of America Saves, said a recent survey indicated that 52% of those surveyed are saving at least 5% of their income. That's up from 47% a year earlier in a previous America Saves Week survey.
"It's a combination of economics and psychology," Brobeck said.
As people believe that the economic recovery is on stronger footing, he said, they're more willing to believe they can save.
The No. 1 way to save? Make the savings automatic. Direct deposit into a savings account. Automatically transfer some money out of checking into savings.
It doesn't hurt, of course, to have something in mind that you want to save for down the road.
Part of America Saves Week includes a contest where consumers can share a pictureof themselves and what they're trying to save for — maybe a car or a house or a trip to Las Vegas. Share the picture, the story and get a shot at winning $500.
But remember, you want to save for emergencies as well as a special goal.
"It's really easy to want to save for a vacation rather than an emergency fund," Fielder said.
Keeping it Fresh, Young & Free,