I’m old-school: I went to the bank to make a deposit today. (I make most of my deposits in person, inside the branch.) While I waited, I chatted with the teller, whom I know from many previous visits. “I’m writing a book about money,” I told him. “What’s the one thing you wish you could tell people about banking?”
“Save!” he said. He told me there’s a huge generation gap between savers and spenders. “The people who save are generally older. They don’t look like they have money, but they do. They’ve got a ton in their savings account and they chase the best CD rates. But the reason they have money is because they didn’t spend it when they were younger. They’ve been able to let it grow.”
“And that’s not what kids today are doing?” I asked.
“No way,” he said. “The young people I see spend all their money. They’re trying to impress their friends. They buy all this new stuff. Their bank balances are always low. They’re not going to have money saved like the older generation does.”
Then he gave me another great example. “There are people who come in here and you can see why they have money. You look at their account history, and the only thing that comes out is the big stuff, like their mortgage or their utilities. There aren’t a lot of $5 or $6 transactions.”
I laughed and said, “I’ll bet most people have tons of little stuff.”
“Oh yeah,” he said. “It’s all little stuff. But it’s that little stuff that kills you. That’s what will make it so you don’t have anything saved when you’re older.”
Before I left, I asked him if he had any tips or tricks I should put in my chapter on banking. We talked about a couple of ideas, and then he came up with something moderately clever (though it applies to just a few people): “If you’re going to overdraw your account,” he said. “Do it all at once.”
“What do you mean?” I asked.
“Well, let me give you an example. The other day, a lady called me to complain about overdraft fees. She’d been hit with a bunch of them at the same time. But when I looked at her transactions, I couldn’t believe it. She’d gone to the same grocery store four times on the same day, so she was hit with four overdraft fees. If she’d just gone once, she’d still have overdrawn her account — but only once.”
The teller also mentioned that nobody seems to know their bank balance anymore. “They don’t use a check register,” he said, “so they have to call to ask how much they have. But the problem is that what we show you have and what you actually have can be two very different things. It can take up to a week for some transactions to show up. You should track your spending, and not just trust what the ATM says.”
I thanked the teller — who looks like he’s 25, by the way — and left.
I wonder if it’s true that there’s a generation gap in saving. Has the older generation always saved? Or did they start out trying to impress their friends, too? I feel like I’m at a middle point, moving from the “spend to impress” mode of operating to a “who cares what other people think?” way of life. The latter is more liberating and it helps my bank balance.
I’m going to try to find time to interview my neighbor for my book’s banking chapter. I think she’s a manager at a nearby bank. I’d be curious to see what advice she has for people. But really, it doesn’t seem like there are a lot of fancy things you can do with a bank account. As long as you’re saving, you’ve shopped around for a good account, and you’re not afraid to ask to have fees waived, I think you’re golden!
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JD — For the record, it seems authentic to me. I wouldn’t doubt your writing on the account of one comment.
Reading through some of the comments, I’m feeling kinda guilty. My mother-in-law is here visiting for a couple of days. Well, she surprised my husband saying she was going to buy us a new tv for his birthday & our Christmas. Okay, I was thinking $750 or something. I had a nice, little 32″ Samsung LCD picked out.
To sum up the story without sounding braggy — we now have a 46″ Samsung LED tv. (I don’t mean to sound like I’m bragging, just saying.) We would have NEVER gotten it for ourselves… Much too pricey and too many other things the same amount could buy.
Funny enough, we’re like the last of our friends to upgrade our tv…. It wasn’t ever something I thought was necessary. I nearly had a cow thinking that this tv could 1, pay off my car loan or 2, buy the new engine for our 240. However, it is a gift, and very much appreciated as such…. I just feel a tad guilty over the extravagance.
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There certainly is a savings gap. As an underwriter, I see it everyday.
One key point that gets lost is that anyone with a steady income can save. It doesn’t matter if you are young or old, make minimum wage or are so far up the corporate ladder that you fire up your Cubans with $100 bills.
I think the problem with low income earners is they simply don’t think that what they can save will amount to anything. This is dead wrong. Invested wisely, saving a five spot a day over 30 years at 5% turns into approximately $127,000 (depending how it’s compounded). This is much better than a daily latte, movie rental, or lottery tickets.
The problem with high income earners is that they tend to light their cigars with $100 bills — or their personal equivalent. They’ve spent the past 15 years or so riding the gravy train and think the money will always pour in. This mindset, however, may be changing with the current environment.
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Right-O Thrifty Grad! Patience & discipline turns a tiny savings into a comfy cushion.
Good point Little House (& others): Shabby fellow had $200k. Many who look wealthy have mostly bills for their fancy things. And some who look pitiful are prosperous. Didn’t billionaire Sam Walton drive an old pickup truck?
This board is fun, but there have been studies on this subject. “The Millionaire Next Door” comes to mind. [Stanley & Danko, 1996 I think, don't know where my copy is right now.]
Basically its a study of how ordinary people earning $40-50k yr. can amass a net worth of $1M by spending way less than what they earn. For example, in Texas, these self-made success stories call the wanna-be a guy with, “…a big hat but no cattle.”
After the first couple of chapters on such antecdotes, it bogs down with lots of statistics, but the premise is valid and inspirational.
From the book, I belive the data on generational millionaires supports my original post: you become prosperous when you decide to make it happen, quit waiting for that lucky lottery or government grant.
It seems that a majority of millionaires who inherit a fortune lose most of it in the second or third generations. Those who earn their mark and teach their scions to save have fortunes that are retained over several generations.
There’s your gap.
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In my early, early 20s, I think I’m the youngest commentator here. So of all the comments here, I think Mya’s (#56) rang the loudest (in terms of generational saving).
You can’t acknowledge that younger individuals don’t save as much as they could without bringing up the fact that they haven’t learned or been taught that knowledge to begin with. And I’m not speaking for every one, but I think it’s evident the issue is bigger than most people consider.
Another issue to consider is the way modern banking has sort of evolved. We’ve got a unique system, that, if used properly makes it so that you never even have to go into a bank to bank anymore. And true, this does make it easier to overlook one’s balance (compared to physically being in a bank & having someone tell you what your balance is), but it also goes to show that people with the teller [from JD's bank] mentality take anecdotal evidence from one or two examples without taking into account other factors. For example, what if for every 2 young people that came to the bank, 5 more didn’t, but those 5 saved consistently? You can’t possibly make the same observation the teller has if that’s the case.
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There has — and always will be — what you call a “generation gap” in savings.
Young people (ages 18-35) are in their borrowing years. They are what financial marketers label “Credit Driven.” They are getting credit cards, buying cars, first homes, getting married, having babies, etc. All that stuff demands more cash than they have.
Middle-aged people (35-55) don’t need to borrow, but they also tend to have few investable assets.
Seniors (55+) have accumulated some wealth.
I have a crude graph illustrating this “Financial Lifecycle” here:
http://thefinancialbrand.com/2008/05/27/gen-x/
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Surprised no one has mentioned health care costs!
Even with our $22,000 a year employer paid health insurance plan, we spend more on health care than a generation ago. My MIL fondly remembers spending two weeks in the hospital following the birth of each of her 7 children. A two week hospital stay today could easily bankrupt a young family, even with insurance.
I was discussing the cost of braces for our children with my MIL and she offered to pay – remembering paying only $500 for braces for her several of her children (my spouse included). I declined her offer and told her the cost is close to $4000 for each child, including what dental ins covers – she was shocked! Her reply was something to the effect of how it would be impossible today to raise 7 children on 1 salary.
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35 is middle aged?!? I know quite a few people who are just getting married or having their first kids at that age! I guess that’s another difference between us and previous generations.
I think that measure is a little outdated. With more people in their twenties struggling to make ends meet (or living at home!) I think the “credit driven” age is going to last a lot longer!
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I think there are two generational things that you didn’t hit (and were already mentioned by comment 12).
First, I do 99% of my banking online. The teller at my local bank might think I’m not a saver, but only if they don’t pay close attention and see regular to-from transfers from my online account.
Second, I also do not know or keep track of the balance on my checking. I don’t keep my account “at the edge” and have few transaction (everything is spent on the credit card, paid monthly in full). So if the (online — i never have called) balance says $500, I know what that really means, and I’m not going to waste my time keeping a ledger.
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Pay is relatively lower for young people than it was for the WW II generation. To earn a decent salary, you have to start with at least a bachelor’s degree, something that has become an expensive proposition. My father earned a good salary as a master mariner, and he didn’t even have a high-school diploma.
Costs, on the other hand, are relatively higher: the costs of housing and automobiles are outrageous. In most parts of the country you can’t do without a car. My parents paid nothing like what we have to pay to keep a roof over our heads, and when they were young most towns and cities had adequate public transportation. Even Los Angeles had a local train system. And when my father bought cars, he could pay for them in cash.
Nor was health care obscenely expensive. Doctors couldn’t do much for you, but on the other hand, you didn’t have to subscribe to insurance plans that pick your pocket, either.
Conditions have changed so radically, I fail to see how you can make a comparison. It is very hard to understand how a young person saddled with student loans, automobile payments, and mortgage or rental debt plus a breathtakingly expensive health care plan could save much.
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@ Emily,
I don’t think that people are necessarily saying, “I save and therefore any generalities about people in my age group that contradict my personal experiences are wrong.”
It’s more that the specious reasoning in this post is presented as a legitimate way to assess how much someone is saving. The balance of a checking account at a brick-and-mortar bank is not an accurate means of judging savings!
What’s worse is that this is being presented as “people in Generation Y don’t save” rather than the probable reason: young people earn less and have had less time to accumulate money, and if they do accumulate money, it’s in an online bank earning more than 0.0125% interest.
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I agree with many factors mentioned in the posts above. I keep thinking, however, of the relative costs of buying a home in my parents’ generation (I’m 35) vs. mine. I recall hearing somewhere that while the relative cost of food, energy, etc. has come down maybe 25% since the 60′s/70′s, the relative cost of housing has increased 75% (sorry, I don’t have the citation. Heard it on NPR at one point, and I think my stats are close).
Now, I often wonder about this statistic b/c the friends I know with new homes have large, new homes with granite countertops, jacuzzi tubs, etc. while my husband and I bought a more modest 50′s ranch home without all the updates, for about half the cost. So I can see why it’s harder for the younger generation to save, since their ‘big ticket’ costs like housing are higher… but shouldn’t we take some responsibility for buying into the ‘need’ for a McMansion? If people weren’t buying them, builders might build something more affordable, which certainly makes saving some of your income easier.
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A lot of people have mentioned that they see the rising cost of living as a big factor in a generational gap in saving, and it reminds me of a lecture by Elizabeth Warren I saw a while ago. I thought it was fascinating, and perhaps others would be interested in watching it, too:
http://economistsview.typepad.com/economistsview/2008/04/the-coming-coll.html
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I would have to go as far as saying that I thinking it’s the banking system that’s old fashion. Younger people today don’t go into banks. They might not even use a physical bank. Nowadays with online banking and brokerage accounts do you really need a bank? I might even go as far as wondering if the current banking situation and changes are not pushing more and more people away from the conventional banking system. Young people might actually realize that they have a long time and that savings account and CD returns just aren’t competitive.
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Like many commenters I have several hundred K in ING direct. Just read a news piece on how the ING parent company is looking to divest the US online banking unit.
Does anyone have any concerns with this? I’m over the FDIC limit and need to look at spreading this out, tracked ING’s balance sheet- saw it was pretty strong so haven’t taken action yet.
-Mike
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“Our North American culture evolved into a consumer based culture well over one hundred years ago. … Toys may have been simpler and electronic gadgets non-existant, but that doesn’t mean people didn’t want things.”
True — but a big difference is that now people can GET these things even if they don’t have the money. Credit cards, or even “zero interest for one year!” (a far cry from layaway), can make it possible to rack up huge consumer debt, or numerous small overdraft fees.
I’m gonna sound like a dinosaur, but here goes: Sure, I wanted things like nice clothes and the latest music when I was a young woman. Generally I couldn’t get them because they cost too much and I had very little money. My sister and I would put a shirt or pair of slacks on layaway and it would take weeks to pay it off. Contrast that to my daughter, who at 18 walked onto a college campus and got a credit card which, thank heaven, she used responsibly. (J.D.: She did not get a Frisbee.)
Note: I am *not* saying that every young person is a lazy, greedy so-and-so. What I *am* saying is that credit makes our consumer culture so much more OBTAINABLE by people who in the past would simply have looked at a big TV and sighed. Now a lot of people can get those TVs. But at what price, ultimately?
Full disclosure: I have a credit card. I use it. I also pay it off at the end of each month. And yep, I save.
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Mike 114 –
Thanks for the heads-up. They way I read it ING banking is fine, insurance will get sold, EU parts first, next year or later, plenty of time to flee if you think so, but to where…? We are big fans of ING.
Of course you know, FDIC $250k was extended to 2013, and by adding account in joint names you are covered up to $500k.
If you’re over that, um, congrats, and please advise us where else you’re thinking of going.
(At our age we’re out of stocks now, still hold some residental rentals, half-heartedly looking to buy more because there are some bargains and because it is a reliable inflation-hedge. But a bad tenant can be a lotta work….)
Have a profitable day!
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From a link some other poster put
“As a saving group, Generation X skews higher than the national percentage, stashing 16.2 percent of their income, with a high percentage invested in mutual funds.*”
I guess this statistic (if true) totally refutes the “folksy” wisdom of the wise bank-teller, JD. Please address.
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I believe there has been a big shift in the past 15 years towards a more consumer oriented society on the one side, combined with higher prices (at least in Europe) and the struggle for companies staying competitive in their markets.
I fully agree with the post, that it is necessary to somehow make one’s finances visible. I am using Microsoft Money now for almost a year, and it has already helped me in identifying where my money goes. Something similair could have well benefited the lady, who went to the groceries four times on one single day.
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There are some great point here. I think it is so critical for people to know how much money they have in the bank account. It is just silly to spend money that you are not sure whether or not you have it. Keeping track of your money will also lower the chance of errors.
I don’t know if there is really a generational gap in saving. I think many people tend to save later in life and spend more when they are younger. When in your youth, retirement and having money when you are older are not really on your mind. Of course, there are the exceptions to every rule, and there are quite of few younger people who save a lot starting at a young age.
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I think it’s true that MOST young people today don’t save a lot of money, and I certainly have lots of friends who fit that stereotype, but I think it’s pretty unfair to say that no one does. I was born in 1982, and I’ve had at least one job (with one three-month break to start college) since I was 16. I bought a condo my senior year in college with 10% down because I had enough money left over after paying my way through college, and my husband and I still save a huge percentage of our income. (However, that money all goes into a Roth IRA, 401k equivalent, or ING; we only keep about $500 in our brick-and-mortar checking account, so I’m sure that the teller there would think that we weren’t good savers if he looked at our accounts.)
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Since there is no way to discuss this topic without a ton of generalization, mine is that depression era people (i.e. my grandparents) had little money but were big savers. Baby boomers (i.e. my parents) often earned and so saved lots of money but are even bigger spenders. My generation, with neither the benefit of of being raised by frugal parents nor having access to the same economic opportunities that our parents had (huge growth in economy and stockmarket during earning years, pensions, inheritances, healthy social security) are doing the best they can.
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Apparantly the generation gap is to do with the WWII rationing and lack of resources. People knew to work hard and make things go a long way. I am 22, and my generation does seem to (generally) care a whole lot less about saving. Myself and one other friend managed to graduate from university debt-free (we both lived at home so could save money on accomodation, however). All my other friends have $30,000 debts (or more) and most of them are not great at saving. I don’t how they will pay it back or buy a house one day.
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