America may seem like a land of super-sized excess and overspending, but a majority of Americans are actually gratification-deferring savers.
Bankrate's Financial Security Index estimates that just over half of Americans have a bigger emergency savings fund than credit card debt. The ranks of savers may be slipping, however. The number of people who say their credit card balances dwarf their rainy-day fund appears to have increased over the four years that Bankrate has surveyed consumers about savings and debt.
The February survey indicates that 28 percent of Americans have more in credit card debt than in an emergency fund. That's up from 23 percent in 2011, though the increase falls within the survey's margin of error. Another 17 percent reported no credit card debt and no savings.
The trend may be to spend
Greg McBride, Bankrate's chief financial analyst, notes that people in their prime earning years, between the ages of 30 and 64, are the most likely to be piling on credit card debt and neglecting their savings. This is "a reflection of the stagnant incomes, long-term unemployment and high household expenses hampering the financial progress of many Americans," McBride said.
The Federal Reserve also has noted a rise in outstanding revolving credit, which includes credit card debt, since 2011. Outstanding balances on revolving credit crept up 0.2 percent in 2011. A 0.4 percent increase followed in 2012. Balances rose 1.9 percent last year, according to the monthly report on consumer credit from the Federal Reserve.
Chris G. Christopher, director of U.S. macroeconomics and global consumer markets at IHS Economics, says that an increase in credit card debt may mean that consumer confidence has improved, at least in some corners of the economy.
"People are doing relatively better," Christopher says. "Overall, inflation is not so strong. Wage increases are surpassing price increases, but are still modest. People feel a little more comfortable spending."
The FSI found a variety of additional details about how Americans save and use credit:
- Parents were more likely to have excessive debt, compared with savings, than people who aren't parents. Thirty-three percent of parents reported higher credit card debt to savings on the FSI, compared with 25 percent for non-parents.
- Education and a higher income lead to more savings. Sixty-two percent of college grads were most likely to report higher savings than credit card debt, compared with 44 percent of those who didn't attend college.
- Earnings follow the same pattern. Among those who earned $75,000 or more per year, 66 percent reported higher savings than credit card debt. Forty-two percent of people earning less than $30,000 annually reported more savings than debt.
- The other side of the coin: Survey respondents in the lowest income bracket were most likely to say they had no debt or savings. Only 5 percent of people earning $75,000 or more have no credit card debt or savings.
- Only 10 percent of Republicans said they had no savings or credit card debt compared with 18 percent of Democrats and 19 percent of Independents.
Debt versus spending
Emergency savings are the backbone of any financial plan. It's meant to be a primary source of support during unplanned illnesses, job losses or some other unfortunate event.
Financial planners have been urging consumers to build emergency savings funds for years, and the advice has grown stronger since the recession.
"We all learned a lesson from the '07-'08 period," says Mike Eisenberg, founder of Eisenberg Financial Advisors in Los Angeles. "In the olden days, we said to have six months' worth of liquid savings for emergencies. After '07 and '08, we've upped it we say a minimum of a year," he says.
The ultimate goal, Eisenberg said, is to have two years of expenses socked away in an emergency savings account. But starting small and building on momentum takes away the intimidation factor.
Cut the fat and save it
Some people seem to have come out of the womb toting a calculator and ledger. For those money nerds, tracking expenses and budgeting comes naturally. People born without a burning desire to budget can learn to enjoy it: all it takes is a little saving success.
"You figure out what is coming in and see where the outflows are," Eisenberg says. "The critical part is to look what is coming in and what the individual is spending. There is inevitably a place where the spending can be cut back a little."
After cutting the fat from your budget, funnel it back into savings. Even for those struggling with credit card debt, building an emergency fund should be the first order of business.
Experts recommend paying the minimum on revolving credit accounts while squirreling away a modest pile of savings. For someone with credit card debt, socking away two years of expenses may be too ambitious. Instead, stockpile enough of an emergency fund to cover one or two emergencies.
"You can be super-aggressive in paying off credit cards once you've gotten to the place you need to be with savings," says Xavier Epps, owner of XNE Financial Advising in Woodbridge, Va.
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