US Households struggle to save money. This is a fact. With the average personal savings rate at around 6%, it’s clear that households across the United States struggle to save money and ultimately build wealth.
While families across the country struggle to increase their wealth, young adults face even more challenges than the rest of Americans.
I graduated college in 2009, into one of the worst job markets in recent history. Thankfully my wife and I graduated college without any debt and had a little bit of savings to help us get started as young adults. This afforded us some time to find a job and cover our bills. But this would not last long if we did not quickly find jobs to cover our expenses.
The situation would have become much worse if our cash flow did not improve soon. We were able to find jobs and begin to cover our daily expenses, but it was not easy.
Shortly after we moved in our first apartment (where we spent as little as $600 furnishing the apartment), we both secured jobs. But they were far from our dream jobs.
Heck, back then I’m not sure if I knew what my “dream job” was. (Is there such a thing? Who knows…) Mrs. 20s ended up working as a street canvasser and I worked full-time at a local university.
Mrs. 20s’ compensation included incentives when she performed well, similar to being paid on commission. She ended up being a successful salesperson, which made her the bread winner of the family. This is helpful because we struggled to make ends meet, even with her performance pay.
For the first few years of our marriage, we had a lean budget. It wasn’t until maybe 4-5 years in that we created what we called a fun budget, where we allowed ourselves $500 a month to splurge. Until that point, we prioritized a debt-free lifestyle.
While we were able to make ends meet as young adults, it was very challenging to save money. It seemed like the odds were stacked against us. We didn’t let this get us down and we pushed on, but that is not to ignore the challenges with saving money that we faced as young adults.
Young individuals or families face even more challenges. While young adults may have fewer expenses that older individuals do, that doesn’t mean that saving money is easy.
Below are some of the challenges that young adults face when trying to save money.
Why It’s Hard For Young Adults to Save Money
1. Low Salary: Young Adults Earn Less
Students graduating from college are entering the job market with little to no work experience. As we did when we graduated college, young adults are often forced to settle for any regular job.
Many of my college friends have been forced to continue working at a restaurant or accept an Americorps position because of the inability to find something better.
Having a low salary makes it difficult to save money no matter who frugal you are.
2. High Student Loan Balances
While I was able to graduate from college without student loans, most young adults are buried in college debt.
The average college graduate finished their education with almost $30,000 in student loans.
Most of these loans come due six months after graduation. Even with making the minimum payments, the commitment to repay these loans takes away from what little income people in their twenties do have.
This moves saving money to the back burner.
3. “Need” for Technology
If the first two challenges weren’t enough, most young people have lives that are connected to technology. Interacting on social networks is part of young adults’ culture.
Facebook was created with my generation. The ability to stay connected comes with an associated cost.
Based on an informal poll of my friends, young adults often pay large amounts for the latest gadget. Whether it’s the latest phone, computer, tablet (although they seem to be losing steam), young adults appreciate and pay for their technology (apparently anywhere from $1,000 – $2,000 for a new phone).
In addition to buying new hardware, there are also the ongoing costs, both for high-speed internet and unlimited data plans.
The price of technology gives a new meaning to the latte factor.
Young adults’ commitment to technology and prioritizing this expense means fewer resources to dedicate to savings.
4. Lack of Experience
Starting to manage your own finances can be a challenging task. Learning to reduce your expenses and increase income doesn’t come easily.
It often takes time to adjust. It can even take a few big mistakes to shake people in their twenties into reality.
Many young adults don’t realize the work it takes to stay out of the red each month. It could be that they are used to living on their parents’ income or just a matter of inexperience.
How to Save More Money
Just because the odds may seem like they are stacked against you, it does not mean that you are powerless. Over the past 10 years, my wife and I have learned to save more and more money. We now save about half of our income and you can do the same.
1. Set Financial Goals
I find it extremely motivating to set a financial goal. Similar to how registering for a 5k race can get you off the couch and training, setting a financial goal can also motivate you enough to act.
2. Increase Your Income
The biggest contributing factor to us increasing our savings rate has been advancing in our careers and the accompanying pay increases that come along with that.
Once you start to earn extra income, saving money becomes that much easier. It is not automatic, and you have to prioritize savings, but earning more money makes it easier.
The easiest way to earn more money is to either find a new job because studies show that you can get a huge increase by switching employers, or better yet, earn a promotion at your current employer.
3. Curb Your Spending Habits
This may seem obvious, but the third (and perhaps the most important) step you can take to save more money is to stop spending money.
This is not always an easy task. Often spending money is an emotional decision, not always a rational one.
While on the surface it may seem like you just need to spend less, it may also mean that you have to do some reflection and behavioral changes.
Break the Mold and Save More
It may not be common or easy to save money at a young age, but it is possible. Be creative, commit to incremental change, and be relentless.
I think that the main reason most young adults have a hard time saving is because once they graduate and land a decent job, they think they have made it. They get a bigger apartment, a new car, new clothes, and go out all of the time. They have no concept of how much things cost and that they don’t need the latest and greatest of everything.
It’s not completely their fault either. No one teaches them about personal finance in school. They have to hope that their parents were good with money and learn from them.
My advice for young adults: Try your hardest to avoid buying a lot of new things once you get a job. Keep living life like you are in college. It may not seem fun or cool now, but it will be really fun in the future when you have the money to do things you want.
I think some of these same challenges apply to older adults too. If the skills are not learned then the bad habits will repeat.
Great question! Why is it difficulty for anyone to save? The obvious answer is with a lower salary you have less to work with. Recent legislation that has allowed companies to have automatic enrollment in 401k plans has dramatically increased plan participation in young workers. It all comes down to personal choice in the end,
Lack of Experience? GUILTY! I had plenty of people around me whom I could ask (while in my 20’s) for financial advice/suggestions, but I decided I was invincible & could do it better on my own. Boy…was I wrong! The only thing I proved was I had a talent for screwing up!
Doing what I can now to avoid finding myself in a “time loop of financial misery” (aka- repeating my mistakes).
Definitely agree with this list, and with Lisa. Bad habits shouldn’t be repeated.
I agree with your list. I would also add peer pressure. When you are younger you feel the need to keep up with your friends or others in a different financial situation. You don’t have the self confidence yet to tell yourself you are doing great without those things. When you get older, you don’t care about what others have. You enjoy what you have.
Yes, peer pressure does seem to prevalent in young adults and overspending.
The post did not differentiate between single adults and married adults. I notice w/ single folks that they tend to spend a ton on eating out because it’s a social thing. So that would for sure be on the list if it were specifically dealing w/ single adults.
And I am not sure if I have the answer for that yet. I think it differs per individual.
Often it is difficult to tell the difference between a reason and an excuse. For instance, I earn the same amount of money as the majority of my work peers because we’re all on the same stipend. Over years in the situation I have observed many people living lifestyles that prevented them from saving or even caused them to borrow money to get through school. To them, they have “reasons” why they are not saving money. To me, they are excuses. It’s the same with me relative to others – I have “reasons” why my savings rate isn’t higher (we “need” that fast internet connection at home!) that sound like “excuses” to others who have made different choices.
No answers here other than closely observing others’ lifestyles, like through PF blogs, can be helpful in evaluating our own choices to see if they fall under reasons or excuses.
Thanks emily. It’s true… we do seem to make excuses. I hope that through readings PF blogs, people will become more aware of how they are spending their money. That is one of the main reasons I am in this business, after all.
I feel like the main reason is that many young people go directly from having their parents pay for everything when they’re in college to suddenly paying for everything themselves. They don’t realize that the standard of living they are accustomed to isn’t reasonable for their income. I feel like I’ve managed to avoid this largely because while my parents did pay for my living expenses during undergrad, I got a lump sum at the beginning of every semester and had to pay for all of my rent, utilities, groceries, gas, school supplies, etc. out of that money. I already knew what my expenses were when I transitioned to supporting myself during grad school, and when I graduate in May I’ll just need to add in health insurance and my cell phone bill. When you transition gradually like that it forces you to scale back your expenses and lifestyle as you take on more personal responsibility, so it’s easier to view the increased income from full time work as money that can be saved rather than money that needs to be spent.
You hit the nail on the head – many young adults think that they should immediately be able to sustain a standard of living that it took their parents 30 years to build up to. Depending on income, that may or may not be the case (not, for me!).
Thanks, yes, it is crazy how financially illiterate some young adults are.
I agree with Penny. Having young adults pay for things they need with their own money during their undergraduate years can help then “transition” better into supporting themselves better financially after graduating from college.
I think the last two on your list are the most prevalent to me. College grads are just poor at managing money. It’s nearly a fact. Going hand in hand with that, there’s lots of temptation for technology and other purchases that aren’t really needed (cars?)
I think the unfortunate fact is that a lot of young people spend money because their friends also do, and they just end up feeding off one another.
That’s a good point too. It almost becomes a competition.
It’ll keep getting more and more difficult for younger generations because they are bombarded with new advertising and trends. It was tough for me when I first started out too. The money in the bank was burning a hole in my pocket and it was easy to go out every weekend and have fun. 🙂
Agreed – advertisements are getting out of hand. What made you change your ways?
It’s a lot more fun going out and hanging with friends. The difference is now your doing it with a salary and the dollar beer nights are too easy to pass up. Bottom line they are all just excuses to not start. Some good excuses, but excuses none the less.
So many pressures on young people to spend and borrow. Not many role models telling them to be careful. Nice post.
Yes, it’s hard without anyone to look up to. I think the blogging world is going to change that slowly.
Its quiet difficult for adult to save money cause of technology.Every year new products were issued and the young minds are still craving to have that items.