One of the easiest ways to understand why more young American adults have debt rather than savings is simply this; while it can take an entire year to save $1000 if you put $20 a week in savings, opening a credit account with $1000 in credit takes only a few minutes and can be spent in less than a day.
The problem is, while “easy credit” is an expression used every day by consumers around the country, no one talks about “easy savings”. In fact, according to a recent study by Bankrate.com, nearly one out of four American consumers have more credit card debt then the amount of money they have in an emergency savings account, which is not very good at all.
Younger consumers have even more of a challenge due to a number of things, including student loans, young families and the perceived need to “be hip”. Those include subscription services to called brands for things like beauty supplies, lifestyle products and so forth, which can easily run between $10 a month to $50 a month.
One of the bigger problems is also that many young Americans are now staying in their parent’s home longer, which means that they have a lot less bills to worry about and, instead of putting their money into savings where it should be (and where it can earn compound interest for a much longer period of time) they end up spending most of their money on socializing, consumer goods, electronics and so forth.
Indeed, setting aside an emergency savings plan to cover 6 to 12 months of bills, something highly recommended for consumers young and older alike, can seem as impossible as putting aside $1 million. Even putting aside an amount of money as small as $20-$25 a week can be overwhelming for some young consumers, due to either overwhelming bills or the fact that they simply don’t realize how much money they’re actually wasting.
Another fact that goes over the heads of most young consumers is that credit card debt comes at an extremely high cost. The average interest on credit cards is just under 16% and, on a $2000 credit card bill, would take over 10 years to pay off if only the minimum amount was paid every month. Not only that but, by the time it was paid off, the young debtor will have spent nearly $1400 more in interest payments.
The real failing goes back to both school and parents, neither of whom are teaching young people the benefits of being frugal, compound interest and having money set aside “for a rainy day”.
Instead, banks bombard young consumers with offers for credit cards that, in most cases, is like waving a steak in front of a hungry bear. It’s very difficult to keep that bear from getting that steak, and just as difficult to keep young consumers from making the mistake of opening a new credit card and quickly maxing it out.
