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Mustard Seed Money

Mustard Seed Money

Why It’s Good That 1 In 5 Americans Have More Credit Card Debt Than Savings

February 26, 2018

THIS POST MAY CONTAIN AFFILIATE LINKS. PLEASE READ MY DISCLOSURE FOR MORE INFO.

 

In a recent survey by Bankrate, 21% (roughly 1 out of 5) of respondents reported that they owe more on their credit cards than have set aside in their emergency funds.  

 

While the study doesn’t define a “properly” funded emergency fund, readers of Mustard Seed Money know that financial experts typically recommend saving 3-6 months’ worth of expenses in this type of account.  

 

The reasoning for 3-6 months?  If you are out of work during a recession, you are most likely to be out work for 6 months.  If you are out work during a non-recession period, you are likely to only be out of work for 3 months.  That’s where the 3-6 months worth of expenses comes from.  

 

In addition to 21% of respondents having more credit card debt than emergency funds, 12% reported that they neither have credit card debt nor any emergency funds.

 

How can this be good news?

 

Americans seem to be taking the emergency savings versus their credit card debt seriously.  58% of respondents reported that their emergency fund or savings account amount was greater than the amount of credit card debt that they held.  

 

This figure is the best that it has been in 8 years, with 2015 also reaching the same percentage.  That is why the current stats are good news.  In 2016 and 2017, only 52% of respondents had more in savings than credit card debt.

 

It is encouraging that more and more people are taking their finances seriously.  More people should be prepared if an emergency occurred.  

 

However, before we pat ourselves on the backs, there is still a lot of improvement that can be made.  33% of respondents, at any moment, are one missed paycheck or unexpected expense away from a financial crisis.

 

Generational Differences

I’m sure it won’t surprise anyone when I say that the 67% of the Silent Generation (76-93 years old) has more in their emergency funds than in credit card debt.  However, what is surprising is that Millennials (<38 years old) actually come in second with 61% of them having more savings than credit card debt.  

 

Rounding out the generations, Baby Boomers (54-72 years old) report that 56% have more emergency funds than credit card debt.  Finally, Generation Xers (37-57 years old) come in last with 54%.

 

How To Save More In Your Emergency Fund

Clearly, the first thing that you can do is spend less on your credit cards, which will in turn allow you to save more.  On top of that, you can set up an automatic savings plan.  This allocates a certain dollar amount from each paycheck towards your emergency fund, until it is fully funded.  

 

Why It Is Good That 1 In 5 Americans Have More Credit Card Debt Than SavingsAs most of you know, this is a not a new concept.  David Bach expands upon it in his book, The Automatic Millionaire.  I recently read, “Learning to save is a lot like running a marathon – you need to build up to it by training gradually. It’s too overwhelming to go from saving nothing to saving $2,700 a month, so you need to start slowly and keep it simple.”

 

If you feel like you don’t have any money left at the end of the month to save, you might be doing things wrong.

 

It is crucial to “pay yourself” first by setting aside an amount from each paycheck.  Saving $2,700 in a year may be daunting for many, let alone $2,700 in a month.  That’s okay.  As Bach affirms, starting slowly is quite alright.

 

As most of you know, lifestyle inflation is real.  The more you make, the more you may want to spend.  However, think back to your first job and probably your lowest salary.  You were still able to survive on that and hopefully make happy memories along the way.  That’s why it’s so important to self-audit your finances to ensure a savings plan within your budget.  It may take some tinkering, but you can make the necessary changes to ensure that you are saving in case of an emergency.

 

So readers, do you find the percentage of people who have more credit card debt than emergency funds surprising?  Did you think it would be higher or lower?  Share your thoughts below.

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22 Comments

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Comments

  1. Brad - Financial Life Planning says

    February 26, 2018 at 6:19 am

    I’ve read the same data recently but didn’t draw out the same conclusion. I guess the glass *IS* half full when you look at it from this angle! 😉
    Brad – Financial Life Planning recently posted…Why You Need To Understand How Mortgages WorkMy Profile

    Reply
    • Mustard Seed Money says

      February 26, 2018 at 6:55 pm

      Hahahah…I like putting a positive spin on things. Anything higher than zero is too much but I am glad to see it’s trending down 🙂

      Reply
  2. Lily | The Frugal Gene says

    February 26, 2018 at 7:22 am

    Wow millennials are doing pretty good!
    I think the Generation Xers have had it tougher than most even including millennials. They’re so often ignored! I’m not too shocked to see they’re last, although for that age range it’s quite shocking.

    Reply
    • Mustard Seed Money says

      February 26, 2018 at 6:57 pm

      I definitely think that Gen X is the forgotten generation at this point. But it does floor me that they were dead last. I would have thought they’d be ahead of the Baby Boomers who I seem to catch a lot of blame these days 🙂

      Reply
  3. Mr. Freaky Frugal says

    February 26, 2018 at 7:38 am

    “Rounding out the generations, Baby Boomers (54-72 years old) report that 56% have more emergency funds than credit card debt.”

    I’m a FIREd Baby Boomer, so I find this appalling. That means 46% of Boomers have more credit card debt than emergency funds after work for 30 to 50 years!
    Mr. Freaky Frugal recently posted…Do you have Unclaimed Property?My Profile

    Reply
    • Mustard Seed Money says

      February 26, 2018 at 6:58 pm

      Yeah I have to admit I was a bit shocked by the numbers. I would have thought their financial house was in better order but clearly each generation seems to be making some mistakes 🙁

      Reply
  4. Laurie Blank says

    February 26, 2018 at 7:53 am

    I’m not surprised at all that my generation came in last. We are the generation of “We deserve”! I hope we wake up soon – retirement age is coming around fast!! Great article, Rob.

    Reply
    • Mustard Seed Money says

      February 26, 2018 at 6:59 pm

      Thanks Laurie!!! I am hoping that everyone gets a wake up call soon before it’s too late. Bull markets don’t last forever.

      Reply
  5. Tom @ Dividends Diversify says

    February 26, 2018 at 8:31 am

    Rob, Not sure I have ever thought about that relationship. What would interest me is the percentage of people that carry credit card debt. Aside from not creating it in the first place and second only to having an emergency fund, people should go to extremes to eliminate it. I’m not sure what credit card interest rates are (15%?). It’s just a no brainer to pay it off and take that guaranteed return before saving, investing, contributing to retirement plans, etc. Tom
    Tom @ Dividends Diversify recently posted…So What’s With These Model Portfolios?My Profile

    Reply
    • Mustard Seed Money says

      February 26, 2018 at 7:01 pm

      I’m right there with you. Why have money in a savings account earning 1% when you can pay off a 20% credit card? I’ve never understood that mindset. Especially when you can charge things to your credit card if you got in trouble instead of paying for it out of your savings account.

      Reply
  6. Bernz JP says

    February 26, 2018 at 8:52 am

    Not really surprised with millennials coming in second with more savings. They are making more money and more financially informed. They are saving their money in the bank instead of investing them. According to a study, millennials have at least $100k in savings and they managed their credit card debt responsibly.

    Reply
    • Mustard Seed Money says

      February 26, 2018 at 7:02 pm

      Wow I had no idea that millennials have a $100k in savings. That’s great news hopefully that means they are the most responsible generation since the Silent Generation 🙂

      Reply
  7. SMM says

    February 26, 2018 at 9:13 am

    Sometimes I feel like people are so determined to get points, airlines miles, cash bonuses, etc. etc. etc. that they don’t realize how much debt they are carrying and the time and interest it takes to eventually pay it off. I do like the Bankrate results though; it seems we are finally starting to head in the right direction. 🙂
    SMM recently posted…Overcoming Stock Market FearMy Profile

    Reply
    • Mustard Seed Money says

      February 26, 2018 at 7:04 pm

      I totally agree when you swipe plastic you don’t feel it. So when you’re accumulating points it feels like you are earning money when in reality you are really just spending money and getting a small coupon 🙂

      Reply
  8. CJ says

    February 26, 2018 at 10:19 am

    I’m not surprised by this at all. Most people live on credit cards and are always in debt. They’ll never get out of it. They buy whatever their hearts desire at every moment.
    They may be on to something as people that save money like crazy can die tomorrow. At least the people in credit card debt are living and enjoying life in the present.
    The key is finding a happy medium between the two.
    CJ recently posted…Get the Lowest Price Every Time You Shop on AmazonMy Profile

    Reply
    • Mustard Seed Money says

      February 26, 2018 at 7:05 pm

      I’ve found in my personal experience that those that live in the moment seem to have some regretful moments later in life. Hopefully that’s not the case with credit card debt but we’ll see…

      Reply
  9. Greenbacks Magnet says

    February 26, 2018 at 3:59 pm

    One of my favorite PF books. I usually recommend this book to beginners in the finance game. This book is what lead me on the path to saving and blogging about finance. You just start samll and build it up from there.

    Thanks,
    GBM
    http://www.greenbacksmagnet.com

    Reply
    • Mustard Seed Money says

      February 26, 2018 at 7:06 pm

      I totally agree!!! You gotta start somewhere and no amount is too small 🙂

      Reply
  10. Jason says

    February 27, 2018 at 10:49 am

    I do think that millennials, in the long-run, will do better than the Boomers or even the Xers because of the financial crisis of 2008. Similar to the depression era, they have some savings instilled in them and/or saw their parents suffer because of the financial crisis. Those traumas act like echoes on our memory. Hopefully, more millennials will start to save, but it will be really interesting to see how this next generation acts in comparison with others.
    Jason recently posted…America’s Lottery Mentality, Part IMy Profile

    Reply
    • Mustard Seed Money says

      February 28, 2018 at 8:46 pm

      I’m really hoping that millennials stay on track. It’d be nice if this generation got their financial house in order and cleaned up the mess from previous generations.

      Reply
  11. Elle says

    February 27, 2018 at 3:55 pm

    I’ve learned to love paying myself first. It feels like self-love, taking care of myself.

    I’ve found that it really helps to gamify the process and make it fun!
    Elle recently posted…I HIT $100KMy Profile

    Reply
    • Mustard Seed Money says

      February 28, 2018 at 8:46 pm

      I love that thought process Elle!!! I’m going to have to use that in the future 🙂

      Reply

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