We live in an instant gratification environment. Why wait for tomorrow when you can get it today? No money? No problem. Credit is readily available. Let the good times roll as we add another item in the debt column. Slowly but surely we begin to feel a queasy uneasiness about the growing debt.
When I was in elementary school during the 1950s, one small program was applied to all children starting from grade 3. That was the practice of saving money for each child and to make the child’s saving account grow. Since my school was in a typical rural area and the times were only 10 years after my country was defeated in WWII, there weren’t that many children to participate in the program – the only economy lesson available at that time. My parents being poor at the time I could not expect much help from them so I had to work to save 10 to 100 yen every month. Somehow, I managed to save every month without spending hard-earned cash.
By the end of grade 6 when the account was returned with some interest, I had 3600 yen although my parents took it away for our family needs. I wasn’t sad. I had a great feeling of helping my parents then. If anything was learned from that lesson, it was the importance of saving money. Later I realized that it was only saved money, not investment money. The practice of saving however became a strongly ingrained discipline in the people of Japan. According to 2017 statistics, the average Japanese family has16.64 million yen in savings which is equivalent to US$148,500 at current (April 2019) exchange rate .
Statistics of American Households
The above was an economy lesson I learned outside of the regular curriculum in the old days. The main thing was that the importance of saving was instilled in early childhood. In comparison how is the average American doing? Here are some 2018 statistics.
- 20% of Americans don’t save any of their annual income at all. Over 40% of Americans have less than $10,000 saved for when they retire.
- 56% of millennials don’t have any money saved in a retirement account.
- The average American saves less than 5% of his or her disposable income. A half of American households currently live paycheck to paycheck.
- Of the Americans who have savings accounts, the median savings account balance is $5,200. The average, or mean balance is $33,766.49.
- CPA financial planners report: Only about 1/3 of Americans (32%) maintain a household budget.
- Debt (credit card, loans, mortgage)
- According to the latest 2018 data from the Federal Reserve, Americans hold over $1 trillion in credit card debt ($1,023,000,000,000). Non-revolving debt (loans) total over $2.8 trillion ($2,842,400,000,000). These debts carry interest rates as high as 28% annually. It’s gotten so bad that 73% of Americans now die in debt… leaving behind an average total of more than $60,000.
- Americans paid banks $104 billion in credit card interest and fees in 2018, up 11% from the prior year. Nearly one-third of Americans pay the minimum due on their credit card each month.
- A high 44% of American adults are relying on an auto loan to pay for their car.
- The average credit card debt among Americans increased by 18.5% since 2013.
- Generation X has $7,750 and Baby Boomers $7,550 average credit card debt.
- In the past decade, students (virtually no income) have racked up enormous debts, currently total more than $1.5 trillion. The average college debt is more than $35,000 per student.
- Forty-four million people carry a student loan. Most of them can’t afford these loans. They’re stuck – many with $100,000 loans that absorb more than 100% of their disposable income.
- A report from the Federal Reserve Board: 4 in 10 adults can’t come up with $400 in an emergency.
Habits that separate the rich from the poor
There are many theories on how to turn your situation around from being financially poor to financially rich. To make your memory burden small, I can offer you a method Jim Rohn offered: The 70/30 Rule, which is how to live on after tax income. That is “live on 70% of your after-tax money” and allocate the remaining 30% in the following way.
- One-third (10%) goes to charity: the act is giving back to the community.
- One-third goes to investment: any form you are comfortable with and create wealth.
- One-third goes to savings for your rainy days in the future.
It seems that the average American subscribes to the philosophy of spending money and saving what’s left; the rich on the other hand subscribe to the philosophy of saving first and spending what’s left.
My elementary school practice of saving a small amount of money every month wasn’t a bad idea after all. What I was missing was charity and investment. What average Americans are missing today is exactly that: saving money first before spending. Many are doing the complete opposite so they are broke and miserable at the end of their life. They need to listen to and sharpen their intuitive common sense. That feeling of queasy uneasiness I mentioned at the begging? That was intuitive common sense knocking on your financial door.
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