Financial News

My teenaged nieces came to visit me in New York a few weeks ago.  Besides spending three hours agonizing over what color “cheeksters” to buy at Pink, waiting another 45 minutes for them to stand in line to try on ONE tank top at H&M, and then rounding out the rest of the day with more, um, shopping (i.e. THEM going through racks of midriff-baring tops and teeny ’distressed’ jean shorts, ME sitting in a chair boyfriend-style playing Fruit Ninja), we also spent some quality time taking Instagram pictures of each other and watching YouTube on our iPhones. In addition to finding out which stores in Soho have the most comfortable chairs (Uniqlo and Aritzia tied for first place, Mango came in dead last), I sure learned a lot that weekend.

For example, I had heard of but never exactly knew what ‘twerking’ was until my niece pulled up about a dozen examples of little 13-year old girls jiggling their behinds, sometimes against a wall, backed up to their BFF or upside-down.  But now I know, so thanks D and K!

I had also never watched the show “Orange is the New Black” until D and K told me how awesome it is and stayed up all night watching back-to-back episodes.  But everyone can calm down because now I know what it is, and as soon as I join Netflix and watch all the episodes of “Arrested Development” first, I’ll be on it.

My nieces also introduced me to the wild and crazy world of “selfies” (Miley Cyrus is a fan).  I’ve never really had a problem taking a picture of myself in different poses, as long as I could edit, delete or Photoshop them until absolutely perfect.  But with a selfie, you take the picture and then post it all over the place, like on Twitter, Instagram, Facebook, Snapchat, etc.  All weekend, I watched my nieces photograph different variations of “duckface” or close-up selfies with each other, or with my dog, or in a Pink push-up bra showing off cleavage, and I was amazed at their bravado and lack of self-consciousness. They didn’t care if the picture didn’t show them in their best light or the photo revealed some flaws (not that they have any).  But they put their selfies out there for the world to see, and they kept them coming!

Savings through the years

The idea of a selfie got me thinking about how honest we are with ourselves when it comes to saving, or whether we ‘edit’ some of the truth behind our savings habits.  Up until the mid-1980s, Americans saved a significant amount of their earnings. When employer saving plans were introduced in the 80s, the savings rate started to decrease because most Americans were encouraged to sock money away in these tax-deferred plans. In addition, as interest rates declined, Americans were less incentivized to put extra money in savings accounts, and instead invested in real estate and equities for better returns. The upside to this was, well, the possibility of better returns. The downside was poor returns and liquidity challenges.

However, as Americans began to rely more on credit to afford a certain lifestyle, the savings rate declined even further so that by 2005, Americans were saving less than 1% a year. Compare that with an average savings rate of 10% per person in Europe. Since the recession started, however, and as many people lost their jobs, credit became more difficult to come by and salaries stagnated. Americans got better at living within our means and putting more money away. At the height of the recession the personal savings rate reached 5.5%, but has since decreased to about 2.5% in early 2013.

Savings habits

Why does this matter?  Think about the past few years of the downturn and whether you’ve had to make some lifestyle changes as a result. Would things have been different if you had a bigger cushion to lean on during tough times? And it’s not only in case of tough economic times; establishing solid savings habits is crucial not just for the immediate term but also for retirement. As North Americans live longer lives and as the promise of Social Security payments and employer-based pensions begins to diminish (and in some cases disappear), we are ultimately responsible for funding our retirement.

Say NO to retirement drama

Retirement probably seems a long way off for many of us, but it’s important to start saving as soon as we start earning. Here are some tips:

• If your employer offers a savings plan, you may already be automatically enrolled. Check!
   
• Make sure you are enrolled and then make sure you’re saving more than the minimum if you can afford it. Remember, this money comes directly out of your paycheck before it’s taxed, so you never see it long enough to miss it. And in the meantime, the money is invested and growing tax-deferred until retirement.
   
• If your company offers a matching contribution, all the more reason to sock away that moolah!

Emergency fund fun

But first things first. If there’s one thing many of us have learned from the recent weak economy, it’s the importance of an emergency fund.  Here are some tips on building one:

• Your emergency fund should be able to cover at least six months of expenses in case you lose a job or life gets rough. If you’re up-to-date on your bills, an emergency fund is the next goal to tackle.
   
• Every month, once you’ve tackled your budget and paid rent, bills, etc., then pay yourself.  That is, put 5-10% of your earnings away in your emergency fund.
   
• Do it consistently and on months that you can afford to save more, put the extra away!
   
• Once you’ve reached the magic number for your fund, start saving for your next goal - whether for an investing account, a home, a dream vacation, etc.

Are you saving enough?  Take this savings selfie quiz!

• How much money do you put in your savings account on a monthly and annual basis?
   
• Are you aware of your monthly “necessary” expenses?  How much would you need to save for your emergency fund?
   
• Based on your current monthly budget including bills/debt and current income, how long will it take for you to save for a six month emergency fund if you save 5-10% or more of monthly income?
   
• If you’re not saving enough, what steps can you take to start (i.e. avoid the middle of the night online shopping-scapade, dinners out, etc.).

A final lesson from my nieces

While shopping with my nieces, I even learned a big lesson on shopping and saving. Before the trip, they had saved up their summer job money and also got some shopping money from Big Daddy. But instead of impulsive spending at every store, they shopped carefully, made their selections thoughtfully and really considered the value of some of the items they were trying on. In the end, they came away with some great pieces they could share - and both went home with most of their savings still in their wallets!