Americans Aren’t Saving – They’re “Spaving”

If there’s one pillar that’s supposed to be holding up the U.S. economy and financial markets, it’s the apparently resilient consumer. However, if Americans don’t have any money saved up, it’s going to be awfully difficult to spend “resiliently.”

Even as many individuals and families live paycheck to paycheck, and despite sticky inflation that’s now curling back up, too many Americans either can’t or won’t save money for an emergency. Oftentimes, people rely on credit cards to get by although the annualized interest rates may be above 20%.

For decades, the personal savings rate, or how much people save as a percentage of their disposable income, averaged at around 8.9%. Fast-forward to last year, and the U.S. personal savings rate was only 3.9%.

That’s a major problem during a time when interest rates remain high. Alarmingly, a Bankrate survey found that 49% of adults had less savings than they did a year earlier or no savings at all.

Courtesy: Bloomberg

Bankrate’s research also found that over one-third of surveyed Americans had more credit card debt than cash reserves – the highest rate on record. Furthermore, 57% of adults said they couldn’t afford to cover a $1,000 emergency expense.

Still, at least on some level, many Americans understand that it’s not normal or practical to have no savings and a pileup of debt. So, they’re apparently doing something about it – but not necessarily the right thing.

In case you don’t have enough new buzzwords to learn, here’s a new one: “spaving,” or spending money in order to save money. It’s strange and counterintuitive, but logic doesn’t always apply to American personal finance.

Here are a few examples of so-called “spaving.” You might buy more items online, justifying the extra purchases by noting that you’re getting free shipping. Or, you might spend more money at a store to get a discount on other items. Additionally, stores will lure consumers into “spaving” by claiming that a deal is a “limited-time offer.”

Colorado-based psychologist and certified financial planner Brad Klontz sees these apparent deals for what they really are. “‘Spaving’ is us justifying our desire to buy more… Teams of scientists have figured out how to extract more money out of you,” Klontz explained.

Courtesy: Lance Roberts

Certainly, the government isn’t setting a good example to Americans in the area of saving versus spending. The government isn’t even “spaving”; it’s just spending without making any attempt to save taxpayer dollars.

And just as the government’s terrible spending habits will have dire consequences, the other shoe will also drop for many Americans in the coming years. “We are just constantly spending more than we can afford and then we experience stress related to our financial health,” Klontz warned.

We can talk about tips and tricks all day long, but in the final analysis, there’s really only one way to combat “spaving”: spend less money and save more of it, as much as reasonably possible. Much of this has to do with understanding the difference between wants and needs.

Then, after having enough money saved up for emergencies, it’s possible to start building wealth with investable assets. This is how real peace of mind can be achieved – for some of us, step number one is to kick the “spaving” habit once and for all.