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America’s Savings Dilemma: Why We’re Doomed to Spend Rather Than Save

We all know how important it is to save. Your future dreams of home ownership, lavish vacationing and a comfortable retirement hinge on your ability to save. This is to say nothing of what you might be putting away for your kid’s college fund. Saving should be a part of the plan for every household, family, and individual. And yet, the truth is, many Americans struggle to devise or keep a basic savings plan. According to Invested Wallet, roughly 20% of all Americans put aside little to nothing of their annual income. Moreover, the average American actually saves something slightly less than 5% of their disposable income each month. And even more troubling, if faced with a $1000 emergency expense, roughly two-thirds of Americans would struggle to produce the necessary funds.

While we recognize the importance of saving, far too many Americans either don’t prioritize saving or simply lack the financial flexibility to create and keep a sufficient savings strategy. Below, we’ll explore a number of reasons that so many Americans struggle to save.

Before we get into the reasons, it’s important to recognize that for many Americans, the struggle to save is more than just a personal problem. Indeed, as you’ll see here below, there are many savings habits that we can control, but there are also many realities that are far beyond our control. These realities can both factor significantly into the challenges you face when working toward your savings goals. 

RELATED: What Do Americans Spend the Most Money On?

Indeed, given some of the statistics cited here above, it should be obvious that there are also broad systemic issues shaping the American economy. In particular, the high and rapidly rising cost of living in the United States can make saving an inherently difficult undertaking for many Americans. For more on this trend, find out How Inflation Is Impacting American Consumers.

Otherwise, read on for a closer look at some of the reasons that Americans struggle to save…

1.    The Skyrocketing Cost of American Life

Inflationary trends are one thing. As some of the factors driving inflation are corrected—like the rising cost of fuel and disruptions to the supply chain—we may see everyday commodities reduce in price. But the rising cost of essentials like housing, transportation, and education are long-term trends that have made financial life increasingly precarious for countless Americans. Naturally, the events of the last two years—the pandemic and the aforementioned inflationary pattern—have only caused deeper spikes in these existing trends. 

New car prices went up by 12.2% between 2021 and 2022. The National Association of Realtors reports that the price of home ownership spiked by 14.6% in 2021. And it’s not just the rising price of home ownership. Housing of every kind has risen in price. Even rent is becoming less affordable for everyday Americans. According to Time, “Nationwide, rent for a one-bedroom apartment between March 2021 and March 2022 rose an average of 12%; it was the eleventh time in the last year that one-bedroom rent averages hit an all-time high.”

Don’t even get us started on education. Over the last twenty years, says U.S. News & World Report, the price of tuition for a private college education jumped by 144%; out-of-state public school tuition went up by 171%; and in-state tuition for a public college education spiked by an insane 211%. You read those outrageous figures correctly.

Of the many factors beyond the control of the average American, these costs are most inescapable. These precipitously rising expenses are placing many working Americans under intense financial pressure just to make ends meet. This is a major impediment to saving. 

2.    Americans are in Debt

As long as we’re on the subject of education, let’s discuss debt for just a minute. According to NerdWallet, student loans alone account for more than $1.6 trillion in shared debt. This means that millions of Americans are entering the workforce already burdened by debt. For those earning an entry-level income, student loan debts can be an imposing monthly cost. Countless Americans begin their adult lives working their way out of debt, a disposition which can make it extremely difficult to make real headway on meaningful savings goals.

Of course, debt is hardly limited to recent graduates. At the end of 2021, Americans held a combined total of 532 million credit card accounts with a total debt of $860 billion. Whether this debt has been accrued out of necessity, desire, or a combination of the two, it can stand in the way of pursuing and achieving savings goals for many Americans. It is possible to begin saving while paying off debt, but financial advisors will generally recommend taking aggressive steps to eliminate this debt so that you can begin to take strides forward in achieving your savings goals. 

3.    Limited Income

Whether you’re recently out of school and living on an entry-level wage or you work in an industry where salary growth is stagnant, especially relative to the cost of living, Americans subsisting on the lower end of the pay spectrum may struggle to pay for basic expenses. This makes the notion of saving feel like a luxury rather than a necessity. 

It is true that countless Americans are living paycheck to paycheck. This can leave very little wiggle room to put money aside. Even as Americans at the higher end of the pay spectrum actually enjoyed record levels of savings over the course of the pandemic, those struggling to make ends only felt greater pressure to do so during the crisis. 

According to Time, “‘The problem in America, in particular, is that there’s a very large portion of the population that was living paycheck to paycheck. They couldn’t save enough to miss one payment or put $400 aside for an emergency,’ says Sarah Nadav, a behavioral economist in the World Economic Forum’s expert network. ‘So, if they were barely able to pay their bills before then they don’t have very much room to cut down and save now.’”

4.    Income Volatility

The pandemic also magnified financial challenges for Americans who live on unpredictable forms of income. For instance, those working in the gig economy, serving in the hospitality industry, or subsisting on tourism dollars experienced a sudden and dramatic downturn in the ability to earn. While the pandemic is an extraordinary situation, the impact on wage and gig workers highlights an important reality. It can be exceedingly difficult to budget and save when one’s primary source of income is unpredictable. 

According to CNBC, “many of the families who experience income volatility, or annual income gains or losses of more than 25%, are more likely to have inconsistent hours, lower wages and lack employee benefits like paid parental or sick leave.” 

This type of volatility can make it difficult to anticipate income and consequently devise a strategy for managing expenses. Even for those with the good intention of saving, an unstable income can make it difficult to establish and keep a steady savings plan in place. 

5.    Fear of Budgeting

While a low or volatile income can make it difficult to budget, the truth is that many Americans simply avoid budgeting out of fear. Budgeting forces you to acknowledge your spending habits, to see exactly where your money is going, and to make more thoughtful decisions about how you manage your finances. Divide your monthly expenses into essentials (housing, transportation, utilities, groceries, etc.), conveniences (cable television, landscaping, subscriptions, etc.); and luxuries (dining out, event attendance, extraneous purchases, etc.) Once you see how you’re spending your money, you can begin to make more thoughtful decisions about where you put each dollar.

Of course, this requires some sacrifices. You may realize that your dining-out budget is standing between you and your savings goals. This is perhaps why many fear the act of budgeting. It will challenge you to make some lifestyle and spending changes. Some of these changes may be painful. But understanding where your money is all going is at least one key to changing your savings approach. This begins with an honest and thorough appraisal of your household spending. 

6.    Unrealistic Future Expectations

For some Americans, a failure to save simply reflects a willful shortsightedness about the future. Retirement brings with it a dramatic reduction in earnings and, for most, increased healthcare expenses. Add these factors to the lifestyle you envision for yourself. This is the careful budgetary balancing act you’ll need to establish before retirement. Saving should be a major part of this process. Many Americans may incorrectly believe that their social security benefits will help to cover the bulk of their retirement expenses.

Unfortunately, the U.S. Social Security Administration offers some sobering news on this front. According to a study released in 2010, “benefits are now expected to be payable in full on a timely basis until 2037, when the trust fund reserves are projected to become exhausted. At the point where the reserves are used up, continuing taxes are expected to be enough to pay 76 percent of scheduled benefits. Thus, the Congress will need to make changes to the scheduled benefits and revenue sources for the program in the future.”

Simply translated, it’s up to Congress to see that you enjoy the full scope of even the modest social security benefits to which you would be entitled upon retirement. I don’t know about you, but I’d rather bet on myself. 

7.    Social Pressures

This may seem like a particularly shallow obstacle to saving, but it’s something that affects us all. In a sense, feeling like a productive and successful member of society means demonstrating that you can afford to participate in the same activities as your peers. While a lavish dinner out with friends may not agree with your finances it can be difficult to say no. We are at once compelled by the dreaded FOMO (fear of missing out) and embarrassment over admitting that this expensive meal doesn’t fit into our monthly budget. 

This is just one example among countless pressures we face as members of a society which places a heavy emphasis on material wealth. When it comes to giving gifts, attending events with friends, going on joint vacations, sending your children to summer camp and countless other scenarios, you may feel an innate pressure to demonstrate that you can afford to be there. While this pressure usually comes from within, it can place a major psychological stumbling block between you and your savings goals. Don’t let vanity or social pressure throw you off of your savings game. 

8.    Rising Lifestyle Expenses

While inflation is producing a general trend of rising expenses for all Americans, there is another form of inflation that is actually self-imposed. The Making of a Millionaire calls this “lifestyle inflation” which is a clever way of saying that the more we make, the more we tend to spend. Reaching a certain income level dictates spending a certain amount on your car, home, and conveniences. These greater expenditures can consequently place you in a more costly neighborhood with higher taxes, more property upkeep, and a generally higher cost of living. 

This trajectory is the reason that so many American families can feel themselves ascending socioeconomically without necessarily advancing long-term savings goals. Income is generally spent on maintaining a lifestyle that is socially and culturally commensurate with your earnings and the earnings of your peers. 

From the perspective of reaching your savings goals, it’s valuable to recognize that a rise in your income need not necessarily precipitate a rise in the cost of your lifestyle. It’s up to you to continue to prioritize that which you need versus that which you want. Keeping this determination front and center can help you to recognize and resist the creeping rise in your own lifestyle expectations and costs. 

9.    Poor Financial Literacy

For many Americans, the single biggest obstacle to saving is genuinely not knowing how to save. Financial literacy should perhaps be considered a central part of every educational curriculum. Unfortunately, this is not the case. Americans who do achieve financial literacy tend to do so by virtue of upbringing. But for Americans who are raised in households with limited financial literacy, the concepts of paying down debt, budgeting, saving, and investing may all be fairly unfamiliar.

This is a major impediment for Americans struggling to transition from subsistence to saving, to begin planning for retirement, and to help their children reach higher educational and professional heights than the generations that came before them. Saving could be an attainable goal for more Americans if we were given the educational tools to improve our own financial standing. 

10.    Savings Interest Rates are Low

The last several years have seen interest rates winnowed down to an all-time low. At the time of writing, the FDIC places the national average interest rate on savings accounts at just .06%. Compare this to an interest rate of greater than 5% in 2000 (and an interest rate that exceeded 18% in 1980). 

Today’s low interest rates represent efforts by the Federal Reserve to jumpstart the U.S. economy several times over—both in the face of the Great Recession from 2007 to 2009; and the COVID-19 pandemic (2020-2022). But they also represent a steady slope downward of interest rates, one that makes the use of a traditional savings account virtually pointless relative to an array of alternative financial products. 

According to My Wealth Solutions, “When it comes to return-on-investment, cash options like savings accounts are safe but perform worse than shares, managed funds, property and bonds over the long-term.”

However, many Americans may be hesitant to pursue these somewhat riskier account options in lieu of a traditional savings account. Refer to the above section on poor financial literacy. Many Americans with limited financial knowledge and limited funds will feel themselves limited to traditional savings strategies. Unfortunately, today, these strategies offer very little gain, consequently making it more difficult for everyday Americans to begin building on their savings. 


The very best way to learn how to save is to start early. Whether you are a young consumer or a parent, we have some great strategies for getting your financial life off on the right footing. For a few ideas on how to navigate the array of challenges cited above, check out our list of Money-Earning and -Saving Tips for Teens.