The ability to save money is one of the many skills one must learn in order to become financially successful, and one of the most difficult. Moody’s Analytics analyzed different demographics and determined that savings rates increase as we age.
Sadly, according to their data, only one age group saves between ten and fifteen percent of their income, an amount many financial experts often cite as reasonable. Another age group actually carried a negative savings rate! Find out how much each age group saves to see how you compare to your peers.
Under-35s Do Not Save at All
Surprisingly, those under age 35 do not save a single penny, on average. In fact, this group actually ends up with a negative savings rate of one and a half percent. Negative savings rates are often associated with taking on debt and are often the result of people living beyond their means. The negative savings rate makes sense when you consider all of the costs this age group faces like attending college, starting their first job and starting their first household. If you want to consolidate your debt, join MoneyTips and try our free Debt Optimizer tool.
Investing your savings early in life is one of the most powerful actions you can take with your money due to the effect of compound interest. Unfortunately, the typical person under age 35 is not taking advantage of this great opportunity while time is still on their side.
35-to-44-Year-Olds Begin to Save
The 35-to-44-year-old group saves just 2.6% of their income, which is better than nothing. However, their savings rate is lower than what someone in his or her late thirties and early forties should save to become financially independent.
This age group also has many financial costs to account for, such as buying a first home and raising children. Unfortunately, many people overextend themselves during this time by buying fancy cars and larger homes than they cannot truly afford. Redirecting the money from some of these excessive purchases into investments or IRAs could help this age group reach a higher savings rate.
45-to-54-Year-Olds Save More
Those aged 45 to 54 years old save 5.7% of their income. While that improves over the younger groups’ savings rates, this demographic still does not save enough by any stretch of the imagination.
Many expensive life events, such as raising older children or even paying for college, prohibit many from saving as much as they would like. Parents should not expect to pay for higher education with savings rates this low, as they likely have not yet saved enough for their retirement up to this point. After all, you can get a loan for college, but no one gives out loans for money to live on in retirement.
55-and-Older Group Saves the Most
People aged 55 years or older save the most money, with a savings rate of thirteen percent. This group saves as much as some financial experts cite, but unfortunately, they hit that savings rate way too late in life. This group can likely save more due to fewer large costs, as mortgages are paid off, kids have moved out and job-related costs slow down as retirement draws near.
Comparing savings rates to your peers will show you whether you are saving more than those in your age group are, but comparing does not measure how well you are doing financially, as it is based on others that might not be meeting their own goals. Instead, come up with a plan to reach your financial objectives and calculate the appropriate amount you need to save to achieve them. Only then can you truly know how successfully you manage your finances. There’s a tip you can save at any age.