When looking at various financial metrics associated with income, earning potential, and revenue, Americans do pretty well. In fact, only five countries in the world have a higher gross household income than the United States. But digging in and studying the other metrics that are used to evaluate financial responsibility and well-being – such as saving, investing, debt, and spending – reveals that Americans are sorely lacking in key areas.
America’s Worst Financial Habits Exposed
Somewhere along the way, the financial principles that were instilled by this country’s founding fathers have been lost. Good fiscal common sense has been swapped out with poor financial planning. Aspirational wealth has taken the place of actual wealth – and everyone seems to turn a blind eye to foolish mistakes.
The sad truth of the matter is that most people don’t know they’re making horrible financial mistakes. They’ve grown up in a world where they feel their behaviors are normal and sound.
Dozens of personal finance mistakes are perpetuated on an annual basis, but some are worse than others. Here are a few of the most atrocious:
1. No Budget
A recent study by U.S. Bank shows that just 41 percent of Americans use a budget. This number is up from 32 percent in 2013, but is still a scary statistic.
Without a budget, it’s impossible for a household to know exactly how much money is coming in and going out on a monthly basis. This typically results in overspending, a lack of saving, and poor financial discipline.
Every other financial decision a household makes is based on the budget, so it’s imperative that Americans get this figured out. The good news is that it’s pretty easy to get started. Just download one of these helpful apps to get started.
2. No Emergency Fund
Just 48 percent of Americans say they have an emergency fund in place that would cover three months of expenses. This means nearly half of the U.S. population would be out of cash within 90 days of losing a job.
An emergency fund should be a lump sum of cash kept in a savings account that’s separate from the main checking account a family uses to pay bills. It should only be touched in situations that are actual emergencies – such as a sudden car repair or medical bill.
3. Too Much Bad Debt
The student loan debt is a huge crisis in this country at the moment. The average college graduate is now leaving school with a diploma and a bill for $37,172. But the debt crisis doesn’t stop here.
At the end of 2017, total household debt rose to an all-time high of $13.15 trillion. It was the fifth consecutive year of annual household debt growth increases in all major categories (mortgage, credit card, auto, and student loan).
4. Low Rate of Home Ownership
The numbers aren’t quite as bad as they were at the beginning of 2016, but the homeownership rate for Americans is still at record low levels. It peaked at 69.2 percent in 2004 and is now down to 64.2 percent – a considerable decrease.
Homeownership isn’t necessary, but it’s certainly a sign of prioritized spending. Whereas car loans and credit cards are bad debt, a mortgage is good debt. It’s rooted in an appreciating asset, has tax benefits, and features a comparatively low interest rate.
5. Lack of Retirement Savings
With so many other poor financial habits holding Americans back, very few have healthy retirement accounts to fall back on later in life. Research shows that just 35 percent of workers have more than $100,000 saved, while 38 percent have less than $10,000 in a retirement account.
The most troubling fact is that 54 percent of workers have no idea how much money they’ll need when they retire. So not only do they lack savings, but they also lack goals. As a result, it’s expected that millions of today’s workers will never be able to fully retire like their parents did.
Trouble is Brewing
While the economy is hitting on all cylinders right now, looking at America’s financial situation through this lens indicates that trouble may be brewing. It’s ultimately up to each American to understand where they’re going wrong and self-correct. Until this happens on a grand scale, the future looks bleak.