Spending Your Savings Common Practice
Are you a saver or a spender?
Most of us are a bit of both—being only one is illogical. Many of us would also save more given the chance. At least that’s what you may think. However, several studies, as well as my own personal experience, show otherwise.
A recent report from the Center for Retirement Research at Boston College looked at the spending habits of families once the kids leave the nest. “Once this kid graduates, moves off, and gets a job, I can finally save for my retirement” is a familiar tune. Yet the study showed that when given a choice between saving more for retirement and increasing consumption, consumption won out.
Raising kids is expensive. The budget is cramped and something has to give. Vacations, hobbies, furniture, remodeling, and retirement savings all are put aside to make sure the kiddos get the best start in life. Even though I think that retirement savings and raising kids can go hand-in-hand, I accept this fiscal dysfunction brought on by maternal and paternal instincts.
That doesn’t explain what happens when the kids leave the house.
Parents aren’t the only ones guilty of this behavior. Let’s add home owners, car owners (basically anyone with debt), as well as early retirees—because I see the same pattern with them.
Every single person I’ve talked to with a house, car, or credit card loan swore to me that once paid off, they will start saving. Sure, some people followed through, but it certainly hasn’t been close to the majority. Instead, consumptive spending, often combined with new loans, prevailed.
What about those retiring before Social Security kicks in? To get over this problem, many people will overspend from their retirement savings while they wait for their Social Security to start. They know that this overdrawing of their retirement savings is more than can be sustained indefinitely. “No worries,” they think…they’ll cut back substantially once those Social Security payments start rolling in. But once those government deposits do finally start, what doesn’t happen—as you can guess—is cutting back on the amount they take from their savings.
The empty-nesters and the early retirees have something in common. They spend away their new-found budgetary freedom rather than save it. They’ve deprived themselves so long they feel they deserve to splurge a bit.
So, dear reader, are you guilty of this? Are you coming up to one of life’s transitions where you will have the choice to go one way or another?
If you are already saving quite enough for all your future needs, then yes, a paid-off loan or kids out of the house will indeed generate a windfall that you should feel welcome to spend. Enjoy yourself! You’ve been disciplined and you deserve to have some fun.
If not, and your windfall has already been spoken for, resist the allure of what the world has to offer. Spending tomorrow’s money today will make you happy, but only for a while.
This article was published under the title "Hey Big Spender, It's Time to Save" in the WichitaFalls Times Record Newson July 24, 2011.