Collins Community Credit Union

What Previous Generations Never Taught You About Personal Finance and Frugality

In this era of life-changing developments in science and technology, it is easy to believe that we must be getting smarter every year. Yet with respect to our financial decisions, this may not always be the case. Excessive consumer spending is a major and enduring issue in the US, with 38% of US households holding a revolving credit card balance, over half a million people filing for personal bankruptcy annually over the past decade, and almost half of the working population having no retirement saving at all.

Published on Jan 29, 2018

Looking back, Americans treated money very differently half a century ago, and while many aspects of life have distinctly improved since those days, the seniors of today have a perspective on earning and saving money that may be worth following in your life today.

Living on Less Than Their Means

Simply put, seniors highly prioritized savings throughout their lives. In January 1959, when the Federal Reserve Bank of St. Louis first began tracking the personal savings rate, Americans saved an average of 11.2% of their disposable income in investment accounts, savings accounts, or appreciating assets such as their homes. 

According to its most recent data, in November 2017 the personal savings rate was 2.9%, a decrease of almost 75% over the past 59 years. Remember that we are living in a time of much more economic change and uncertainty than previous generations did, and this reality becomes even more concerning. The average American is less financially prepared during a more economically uncertain time ever before.

Planning for Their Retirement

Fifty years ago, people worked in an era in which over half of employers offered defined benefit pension plans. In return for working at a job for a certain number of years (and for many people, their entire working career), employees received a pre-determined payment every month during their retirement years. This arrangement encouraged employees to work at the same company in return for a secure retirement. By 1985, however, the scale tipped toward employers offering defined contribution plans instead, which came with no such promises, and the trend has continued since then.

The lesson from this change is that people used to make career decisions around their retirement funding from their very first job. They planned for their defined benefit plan and their own savings accounts to pay for their retirement. And remember, even with their pension plan guarantees, they still saved their disposable income at a much higher rate than the average American does today.

Using Credit Cards Responsibly

The now-common credit card rewards and incentives programs did not exist until 1989, when Citibank began offering incentives through American Airlines for its customers. Before then, credit cards were not a way to encourage spending or to receive other benefits than access to credit. Early credit cards had annual fees for usage and low interest rates, and people back then would have used them as the tool of convenience and access to credit they were initially designed to be. They may also have used a charge card, in which purchases are made on credit, but at the end of the month the balance must be paid. 

Back in the day, people would have enjoyed the convenience of a credit card or charge card, but they also would have held the now-rare mindset that they would need to be able to cover any purchases at the end of the month.

Paying for Education and Career Planning

Today’s seniors lived in a time in which an American college education was vastly more affordable (and even then, people of the day worried about rising tuition costs). The concept of college education as a means to increase one's future earning potential arose from the 1930s and onward, but the cost of attending college has vastly outpaced inflation or any other reasonable growth rate. 

College attendance rates have risen over the past decades, from 45% of high school graduates attending college in 1960 to 70% in 2017, yet this does not always lead to higher earnings. Today, over a quarter of American college graduates hold a job that does not require a bachelor's degree.

In contrast, in 1960, people would have first decided whether they intended to work in a career that required a college degree (until the 1970s, holding a high school diploma was sufficient to support a middle-class lifestyle), and if so, they would have likely sought the most cost-effective route to obtaining a degree that would directly improve their earnings potential. 

In closing, many of the financial, employment, and investment options you have today are different from anything today’s seniors would have experienced. Yet in this era of greater uncertainty, few pension plans, and more frequent job changes, the core messages of senior’s financial priorities rings all the more true. Living below your means, planning for the future, and managing your expenses prudently will lead you to a happier and more secure financial future. Stop into your local Collins Community Credit Union branch to discuss savings and planning options today!

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