About a year and a half ago, my bestie and I were standing in the kitchen of our house. I was underemployed and beginning to freak out because I was going to have to dip into my savings account that month to pay rent.
“I really don’t want to,” I said. “I hate taking anything out of my savings account when I don’t know when I can replace it.”
“Wow,” she responded. “You’re such an adult. I don’t even have a savings account.”
I was shocked. How could she not have a savings account!? Who doesn’t have a savings account at in their mid-20s?
I’ve had a savings account almost my entire life. I remember going to the bank with my grandfather when I was in elementary school and opening a savings account. Grandpa was big on savings and wanted me to know how bank accounts worked. I’ve had one ever since.
So for my friend (and best friend at that!), to tell me that she had no savings account, came as quite a shock. Millennials are kicking some butt when it comes to retirement savings, thanks to seeing their parents struggle during the Great Recession. But it turns out my friend isn’t alone when it comes to not having shorter term savings like an emergency fund, or having money set aside for a house, kids or wedding.
These shorter term goals are things we need to start preparing for now. Americans in general are pretty terrible savers. Combined with the fact millennials have trust issues with banks as well as minimal financial literacy, there’s a serious problem.
So why do we have these issues? Why don’t we trust banks, and why are we so confused about how to handle money?
When it comes to understanding how money works and what to do with it, millennials are a step behind the curve. The vast majority of people in their twenties never received formal education on handling money through their school experience.
Many of us saw our parents lose their investments, homes, and jobs during the Great Recession. This meant lots of money conversations focused on what to do after a disaster strikes. Conversations about stocks, bonds, investments and emergency accounts? Not so much of a priority.
Learning how to use money just didn’t happen while we were growing up in the boom of the internet age.
The game has also changed. While people used to work at one company from ages 25 to 65, contributed to a 401K for 30 years, and retired with Social Security or pension benefits, that’s not the case anymore.
Social Security simply won’t exist as it does now when millennials retire, fewer companies are offering 401K plans and pensions, and younger generations will almost certainly have more than one career in their professional life.
During the Great Recession and for the first 2 years after, there was a lot of press about millennials living a frugal lifestyle, cutting back in areas their parents splurged in. We were making do with less.
However, as the job market has grown and the pressure on people’s wallets has lessened, we’ve started to spend more and save less. That changing mindset combined with the huge debt burden (both educational and consumer debt) that most millennials face means we spend more in the short term, squirrel away money for the very long term, and ignore the middle term.
Banks Aren’t Bad
The second point is millennials seem to think banks can’t be trusted. Banks aren’t inherently evil.
Yes, the recession was a bad time for banks. And it was a bad time that rippled outward. When the banks went under, the market suffered. When the market suffered, jobs were lost or job creation stalled.
For those of us graduating into that seemingly frozen market, it looked like the blame lay entirely upon the banks’ shoulders. No doubt that they made mistakes and that things could have turned out better for everyone. But that doesn’t mean we should be scared of banks for the rest of our adult and financial lives.
Savings make a huge difference in your personal life. I’ve held an emergency fund in a savings account for the last year. I keep $2,000 stashed in there and don’t touch it ever – unless it’s a true emergency.
Emergencies consist of random, expensive car repairs or a trip to the ER. They do not include travel plans or a new guitar.
It gives me some breathing room if I lose my job. It keeps me from depending on credit cards and plunging myself into high interest debt if something goes wrong. Having that cash stashed in a bank earns me interest each month, ensures easy access for when I may need it. and helps the larger economy.
My little savings account provides me personal peace of mind, and helps my bank generate more business for itself and hopefully more business for another business. Win-win-win.
Set Up Savings!
Now that we know why we’re not saving very well, it’s an easy fix.
Hop online and open a savings account with your bank or credit union today. Set up automatic monthly transfers to it – I like to save $50 a month toward my emergency fund.
Give your savings a goal: a downpayment on a house, the cost of your wedding, or three months of living expenses to give you peace of mind. When you have a goal in mind for your money, it will be easier to save for it.
You can look into higher interest savings accounts for your bigger savings goals, but don’t feel limited to saving accounts, either. A 12 month CD (certificate of deposit) usually offers a higher interest rate, and is a great place to stash your money for the medium term.
Having savings benefits you in every way. Who couldn’t use a little more money? Setting up a savings account gets you that extra cushion.
Plus, if you have a savings account, you’ll be able to link it to your Wherewithal account. That means any cash back you earn gets directly deposited for you!