The Psychology of Savings
Savings are the reason that in “rainy days”, people, companies, and even countries can maintain themselves. Over the years, the average savings to income ratio for the common American man has decreased. Factors such as more spending and financial literacy, as well accumulating large amounts of debt, are some of the reasons for this. With a median balance of $2,400 in savings, most Americans are not prepared for unexpected problems and especially retirement. To combat this and make more Americans prepared for the future, social reforms must be made. Having the right environment applies to spending less on things that are not necessary is very important, it is more pivotal to save for the future. College tuitions, loans, and insurance normally increases over time as the 21st century is passing by so what one saved 25 years ago is less than what one must save for 25 years from now. All three of these ways to learn about the importance of saving ties back to the need of financial literacy. The common American must know what to do financially before they goes out into the real world.
The first way to save money is that in terms of saving money, there is short term saving and long-term saving. Goals such as saving 20 dollars a week contribute to saving $50,000 for retirement as well as an emergency fund for times of need. Establish a spending budget. If a week’s spending exceeds that budget on a birthday or shopping spree, reduce the budget the following week. It may seem like very little saving every week, but in thousands of weeks of one’s life, a saving account can have thousands of dollars. Public plans such as the 401k were built for this purpose. Tracking your saving by becoming more financially literate and checking your savings frequently will also help very much. The second way to save money is not to have too much credit card debt. It may sound obvious but just in the U.S., the public debt to GDP ratio is over 75%. For example, try to spend on small things using cash or try not to put debit and rather spend with credit. Credit card penalty rates can be as high as 35%, which can further plunge families into debt. The third reason, which ties to financial literacy, is to learn more about saving and spending. If you do not, you are more likely to make wrong financial decisions which can lead to problems with banks, FICO scores, and loans. In all, financial literacy is a crucial skill to learn for the future, along with saving money, managing money sensibly, and tracking spending.