Savings Account

Even Though I’m Saving, There’s No Money In My Savings Account

In the 1970′s, the Personal Savings Rate in the United States peaked around 14%. Over the last 40 years, thanks to an increase in consumer spending and a decrease in personal accountability, the Personal Savings Rate in the United States has been trending downward. In 2013, the Personal Savings Rate in the United States sits at a very unhealthy 2.7%. If an American worker is receiving a weekly paycheck of $1000, (s)he is only saving $27.

To compare, the Personal Savings Rate in China is around 38%. If a Chinese worker is receiving a weekly paycheck of $1000, s(he) is saving $380. In other words, an American worker will work 3.5 months in order to save as much money as a Chinese worker saves in 1 week.

How is this possible?

Obviously there are cultural differences, but how can one human-being require so much more money than another human-being?

This phenomenon is often explained in 2 ways:

1. In economics terms:

  • The Great Recession was caused by over-consumption (and a severe mis-allocation of resources in residential real estate). Since the Great Recession, prices and taxes have risen at a time that wages have fallen.

2. In psychological terms:

  • There is a gross misunderstanding of what is needed to survive. This is commonly expressed as a battle between “wants” versus “needs.”

It’s impossible to argue against either of the above reasons. But, I want to add a third reason – a reason you haven’t read about elsewhere. A reason that explains why we aren’t saving more.

False Advertising

Every time we go shopping, we are constantly seeking deals. We are constantly seeing offers such as:

“Buy 2, Get 1 free!”


“Spend $100 to receive 20% off!”

Advertisers have successfully convinced the American consumer that, in order to save more, we must spend more. I know you have seen the message, “the more you spend, the more you save!”

But, this slogan is entirely false. It’s not only misleading, but it’s destructive. Spending more does not lead to saving more. Spending more leads to less savings.

By definition, saving is:

“money that is not spent.” It can also be explained as “deferred consumption.”

It is this mixed message that is partially causing consumers to save less and spend more. We spend A LOT of time looking for opportunities to save. But, the act of saving rarely involves setting money aside for a rainy day (as the definition suggests). Instead, the act of saving is usually just less money spent.

After every purchase, we pat ourselves on the back because we saved X amount.

I went to the grocery store and saved $20. I went to the mall and saved $150. I got my car wash, chose the $10 option  instead of the $15 option, and saved $5.”

These purchases cause our brains to rejoice because, in total, we saved $175.

But, our savings account still shows a zero balance.

What Can We Do To Change This?

Automate your savings.

1. Increase your 401(k) contribution

Increasing your 401(k) contribution by 1% will not negatively affect your current standard of living, but it will significantly improve your future. Also, the money is much more difficult to access in your 401(k) versus a savings account or brokerage account.

2. Divert a percentage of your paycheck to your savings account…and don’t touch it

Start setting aside 10% of your income into a savings account. If you find yourself tapping into it, try separating your checking account from your savings account so that it’s no longer convenient to transfer back-and-forth.

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