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We're supposed to be enjoying an economic recovery since the Great Recession of 2008-2009 - yet many economists have questioned whether the last five years have been much of a "recovery." Judging from the mood of the American people and their personal financial habits, it hardly feels like one.
Although the economy has been on the upswing, people haven't been saving. While the overall savings rate ticked up between 2009 and 2012, it has fallen since then. Forty-four percent of Americans are either in debt, have no savings at all, or have only enough savings to tide them over for up to three months if they lose their jobs, according to an Assets and Opportunity report last year.
Related: Will Tax Reform Mean the End of These 10 Tax Breaks
A recent Bankrate report found that nearly half of Americans are saving no more than 5 percent of their income, while one in five (or 18 percent) is saving literally nothing at all. A quarter of middle class households (those earning between $50,000 and $75,000 annually) are saving about 15 percent of their income to fund their retirement or an emergency savings account, the study also found.
Why can't Americans, whose savings rates have fallen over the last 35 years and save far less of their incomes than most Europeans, Japanese, or Chinese, save even during a supposed recovery?
Despite headlines about relatively healthy GDP growth of about 2.2 percent and falling unemployment, the sad reality behind these positive economic statistics is that wages haven't risen for most Americans since 2000. While headlines decry Europe's sclerotic economy, where average wage growth has lagged behind America's since the 1970s, averages deceive. If one subtracts the spectacular income gains of the top 1 percent in the United States, wage growth among the bottom 99 percent has been less than in France, a country plagued by and derided as a stagnant economy, according to the Organization for Economic Cooperation and Development.
At the same time that wages and personal savings have stagnated or fallen, fewer and fewer American workers are offered employer-provided pension plans that provide some economic security in retirement. That leaves Social Security, which 22 percent of married retirees and 47 percent of those who are single rely on for at least 90 percent of their income.
Related: 6 Popular Social Security Myths Busted
Although the stock market has rebounded spectacularly during the Obama years, the typical American household has seen its net worth fall by more than a third between 2003 and 2013, to about $56,000. And about 60 percent of US workers have less than $25,000 in savings, a far cry from what they will need to retire - while the 16,000 wealthiest American families together have $6 trillion squirreled away.
Not exactly a lot of American nests with nest eggs. In a true recovery, incomes, wealth, and savings for all Americans would be growing. So how can we even make a dent in the US savings crisis?
Raising wages and increasing tax credits like the Earned Income Tax Credit for those who work are essential. But increasing savings is not only about better wages, although earning $20, instead of $10, per hour certainly increases the ability to save. But Americans are not a thrifty people. We also need to build incentives for people to save. Without dramatically boosting savings, not only do tens of millions of Americans face destitution or the prospect of working into old age, but taxpayers will ultimately have to pick up the tab and the lack of savings provides a diminished pool of capital for businesses to invest.
Related: 5 Reasons You'll Return to Work After You Retire
Several ideas could make a difference. One proposal, for an automatic IRA, would serve small-business employees who would automatically save unless they chose to opt out. This could benefit more than 70 million workers who don't have workplace-based pension plans.
Individual development accounts (IDAs) could help build low-income adults' savings, as participants would receive up to a three-to-one government match if they saved for an approved purpose such as a down payment on a house, paying college tuition, or starting a business. A pilot program run by the nonprofit Corporation for Enterprise Development helped create 20,000 such local initiatives. Credit unions in four states have created "save to win lotteries," in which those who save can win money.
Expanding the federal government's Saver Credit, which provides a tax credit for moderate-income Americans' contributions to an IRA or 401(k), also would help. While the IRS has modestly increased how much Americans can stash away in 401(k)s, that amount could be increased even more. Another idea is to create children's savings accounts (CSA), which would be seeded by a small initial investment by government for each baby born into low- and middle-income families, with additional amounts added during childhood as long as the family also contributed to these accounts. The cost would be less than one-eightieth of what taxpayers spent on F-22 fighters, which had never flown a single combat mission until a September bombing strike in Syria. San Francisco piloted a Kindergarten to College CSA, Cuyahoga County, Ohio, approved a similar plan in 2013, and bipartisan federal legislation, the American Dream Accounts Act was introduced by Senators Chris Coons (D-DE) and Marco Rubio (R-FL) during the last Congress.
Americans--and America--cannot survive and thrive unless it can increase the savings and economic security of its people.
Andrew L. Yarrow, a historian who teaches 20th century America at American University, is a former New York Times reporter and author of a new book, Thrift: The History of an American Cultural Movement.
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ST. LOUIS, MO (KPLR)- Spring is a time of renewal and for many homeowners its time to get busy. Remodeling projects are popular this time of the year and if you dont think you can afford it, maybe you can. Tim Cook from First Bank tells us why this is a good time to consider carrying out those improvements. He also gives us First Banks 5 ways to finance home improvement projects.
According to Tim, spring is traditionally a time when home owners start planning home improvement projects. He says as contractors match the right tool to the job, savvy homeowners should match the size and scope of their project to the right sources of financing.
Five financial recommendations from First Bank:
- Home Equity Line of Credit. A home equity line of credit gives homeowners access to funds when they need them. You can generally borrow up to 80 percent of your home`s value. A home equity line of credit is reusable, meaning you can access it again and again as you make payments during the draw period. This means you can always have funds available when you need them. These funds are available to you use for a variety of purposes, but they are often used for home improvements, remodels, renovations, or for unexpected emergencies.
- Home equity loan. Like a home equity line of credit, with a home equity loan you may generally borrow up to 80 percent of your home`s value. Unlike a home equity line of credit, a home equity loan is a fixed amount of funds borrowed and is re-paid in set monthly installments. A home equity loan may also be used for a variety of purposes, but is often used for home improvements, remodels, or renovations.
- Personal savings account. Determining what upcoming home improvements will be needed in advance can help homeowners determine the funds that should be saved or set aside each month or quarter. If you know major repairs or renovations will be needed in the future, set up an auto-deposit into an established personal savings account. Often, homeowners will set up a specific savings account with monthly, pre-allocated amounts set aside to help cover the cost of future renovations or repairs.
- Low-interest credit cards. With low, introductory rates, a mastercard® credit card can be the ideal solution for needed repairs or home improvements. What`s more, many mastercard® products offer purchase protection and extended warranties on your purchases, including home supply products.
- Personal loan. For those homeowners that do not have a lot of equity in their homes, a personal loan may be the best route to take when funding home improvement projects. This type of loan does not require collateral, offers fixed monthly payments, and can often offer lower fixed rates than many credit cards.
For more information visit firstbank.com.
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The US economy is set for a rebound in the second quarter.
First quarter economic data have been missing estimates more than theyve been beating, but in a note Friday, Goldmans Jan Hatzius wrote that the economy looks set for a rebound in the second quarter:
US macroeconomic data have disappointed expectations year-to-date.Q1 growth now looks likely to be significantly below trend. However,we think that the pattern of growth in 2015 will probably mirror that oflast year, with weak growth starting off the year, followed by a bounce-back beginning in Q2.
Here are the five reasons why Hatzius believes economic growth will bounce back in Q2:
The negative impacts of severe winter weather will finally thaw. Goldman estimates that weather-related weakness will shave up to 1% off Q1 GDP. Consumer spending will pick up. Consumers have saved most of their savings from lower gas prices; personal savings rose just as gas prices began to fall around last October. Hatzius wrote theres no obvious reason why consumers will be reluctant to increase their spending, especially because wages are picking upand consumer sentiment is strong. Household formation is picking up, despite the disappointing housing starts report for March. The economic drag of the oil crash will be less in the second half of the year and by 2016, the energy sector should be making a modest positive addition to GDP. Government spending tends to be a drag on growth in Q4 and Q1, removing as much as 0.6% from GDP on average over the last five years. And so, that seasonal effect will be absent in Q2.
Goldman Sachs forecasts Q1 economic growth at just 1.2%, but accelerating to 3.5% in the second quarter.
The Bureau of Economic Analysis will report the first estimate of Q1 GDP on April 29.
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When it comes to financing her life, Tamara Benavente, 30, looks a decade forward when setting her money goals.
When she arrived in Miami at 21 years old from Argentina, her focus was funding her education and her vacations. After her last birthday, however, Benavente decided she wanted to be the kind of adult with a retirement account, an emergency fund, and the financial cushion to start a family.
To that end, she has always -- and she means always -- put 20 percent of the paychecks she ears as a receptionist into savings. When she gets called by production companies to pursue her passion of filmmaking -- and work on music videos or commercials -- she uses that money in its entirety to pay her taxes each year.
"My 20s were about surviving and trying to move forward with a career," she says. "But in my 30s, I can think of bigger things. This is the decade where I say, 'Wow, if I don't get things done they're not going to happen.' "
When you consider the personal savings rate in America is 5.80 percent -- down from a long-term average of 8.39 percent -- it seems we'd all do well to take a cue from Benavente. The little known trick, however, is duplicating her cyclical approach to savings. That means attacking our finances with an eye on short-term chapters.
New research indicates that we tend to get overly optimistic about the future. And that causes us put off today what we assume will most certainly be easier tomorrow.
"If you're looking at a circle of time and think smaller, you're thinking about what you need to do now," says Leona Tam, a professor at the University of Wollongong in Australia. "When we say, 'I can skip saving today because I can catch up in the future,' it's not impossible but it's very uncertain."
Tam and her team took American subjects, divided them into two groups, and performed a series of experiments. In one, they simply talked about different ways of looking at life. The "linear group" was told that events -- such as childhood, adolescence and adulthood -- are over once they're in the past.
The cyclical group was told that events repeat just as the four seasons return each year, and that creating routines in the current cycle makes a person more likely to repeat them in the next. This group reported 78 percent more savings a few weeks later.
"By thinking in cycles, you'll start to realize, 'What I do today will affect what I do next week and next year,' " says Tam. "We figured there were fundamental differences in the way people looked at saving."
That's for sure, says Olivia Mellan, author of Money Harmony: A Road Map for Individuals and Couples, who specializes in coaching people on how to merge their money styles. Sometimes our brains are hard-wired to spend or save, says Mellan; in other cases, our upbringing shapes our relationships with money. Regardless of the reasons, some people hoard money and others worry about it. Some of us overspend and others can prioritize and budget.
"People with different money styles operate in different universes," says Mellan.
If we need to change our habits, Mellan says it's best to start by doing one or two things that don't come naturally. That means adopting new behaviors for one or two weeks, such as avoiding online shopping or depositing money from your paycheck directly into a savings account. Write down how it feels to operate out of your comfort zone, says Mellan, and give yourself a free or low-cost reward when you've earned it.
"It's about developing muscles you've never had before," says Mellan, who agrees that thinking in cycles can help over-spenders to more easily save. "It makes sense to cut things up into bite-size chunks you can handle."
A good way to start thinking about cycles is to consider the many recurring financial rotations we see over and over again, says Denise Winston, who runs the financial education company, MoneyStartHere.com.
Annual cycles include everyone's favorite debt-accumulating time of year, the gift giving holidays of December. And each April, we are legally required to pay our taxes.
Then there are the annual amounts you pay to maintain a car, such as insurance, maintenance. Don't forget about health insurance, you pay premiums but there's also an annual deductible. Every weekend, you'll want to be entertained or served at a restaurant. If you have kids, you'll need to suit up in different sports gear each season.
And if you have a job, you'll need to every two years buy continuing education classes, new clothes and admission to networking events.
"The best thing you can do with any unexpected financial windfall," says Winston, "is to better position yourself for these cycles."