It seems like every time we get new statistics on how Americans are saving, the numbers just keep getting worse. A study conducted last year by GoBankingRates.com told us that 62% of Americans have less than $1,000 in savings. And in case you don't think that's bad enough, here's another dismal statistic to chew on: According to a study by the Federal Reserve Board, 47% of Americans would not be able to cover a $400 emergency without resorting to borrowing money, or selling off possessions.
It's not just low-income families who are failing to save. According to the Fed study and others like it, many middle-class professionals also have a hard time saving. And in yet another study, almost 25% of households earning between $100,000 and $150,000 a year admitted that they'd have considerable difficulty coming up with $2,000 within a month's time.
Recent data from the Pew Charitable Trusts further drives home the point: Over 50% of households claim they don't have enough savings on hand to cover even a month's worth of lost income. What all this research tells us is that Americans, as a whole, are lacking in savings, and it's a definite problem.
It's not just a matter of liquidity
There's a difference between not having $400 in accessible cash, and not having $400 period. Given today's horrendously low interest rates, keeping the majority of our money in a savings or checking account just doesn't make sense.
But when we look at the average person's net worth -- as in the sum of all assets, including property, retirement accounts, and investments -- we're only seeing those numbers go down. According to research by the Russell Sage Foundation, in 2003, the inflation-adjusted net worth for the typical American household was about $88,000. In 2013, that number dropped to just over $56,000, representing a 36% decline.
In other words, it's not just a matter of Americans not having $400 on hand; it's a matter of many not having $400 at all. And while it's generally smart to put cash you're not using into a more lucrative investment than your basic checking or savings account (think stocks, bonds, and other higher-yielding vehicles), the one exception to this rule is your emergency savings, which should always be liquid and immediately available.
Most people should aim to have three-to-six months' worth of living expenses accessible at all times. If you're among those who would have to beg, borrow, or steal to come up with $400 at a moment's notice, consider yourself frighteningly far behind.
Debt can cost you, too
If you're the type of person who has no qualms about whipping out a credit card to pay for an emergency, you should realize that debt has its consequences. First of all, if you charge up a storm and can't pay it off, it'll damage your credit, thus limiting your ability to borrow in the future.
Furthermore, paying off a credit-card balance means throwing away money on interest charges -- money that can really add up. Imagine you're forced to charge a $1,000 car repair to your credit card, and that it takes you two years to pay it off at 12% interest. Carrying that balance will cost you $130 in interest payments -- which is a lot if you're one of those people who don't have $400 in the bank.
Saving money often boils down to changing your habits. Subtle lifestyle changes, like cutting your cable package or cellphone plan, can go a long way toward freeing up small amounts of money. Over time, small amounts can grow into larger sums, especially if you're smart about how you invest your cash.
Imagine you're able to make a few changes that free up $100 a month, or $1,200 a year. First, that's a decent chunk of change on its own, especially if you're going from having no money in the bank whatsoever to a $1,200 balance. But watch what happens if you save $100 a month consistently over the course of 30 years.
If you invest in stocks, and manage an average annual return of 8% -- which is actually a bit below the market's historical average -- after 30 years, you'll have an ending balance of roughly $136,000. And while you'll need to fund your emergency savings before you start investing in stocks, once you have that safety net in place, there's ample opportunity for building wealth.
If you're among the 47% of Americans without easy access to $400, let this serve as a wakeup call. The path toward a financially secure future starts with saving money, and the sooner you begin, the greater your chances of meeting your ultimate goals.