Saving money is never easy – think about future needs when present needs are so urgent. Financial expert Suze Orman said Americans have failed for decades.
“Most people in the United States have never had more than $400 in a savings account in their name,” Orman told MoneyWise. “So if something happens, an emergency happens, they won’t have that money.”
WATCH NOW: MoneyWise talks to Suze Orman and Devin Miller of SecureSave
That’s when a momentary crisis turns into a long-term disaster: People use their retirement savings and credit cards, losing even more money in the form of fees, interest, and foregone income. Miss.
Orman has written several books on personal finance and hosts the Women & Money podcast, but now she says it’s time not to give advice.
“For 40 years, I have been trying to change people’s minds. People change when they’re ready – they don’t do what they’re told. They do it when they know they have to.”
Two proposals to Congress would introduce new savings options through employers, but Orman refused to wait. She’s created her own system that she says will help Americans end up spending money – by taking decisions out of their own hands.
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Congress steps in
Orman is right about the financial fragility of most Americans: Last year, only 32% said it could handle the sudden $400 expense.
It’s only gotten tougher this year due to higher inflation and interest rates, but Orman says it’s “not a new phenomenon.”
“It can feel like it’s new because of inflation – many people alive today have never experienced inflation in the ’70s… and now they’re saying, ‘Oh my God, inflation is eating,” Orman said. wasting our money”.
So while Americans may have a reputation for being bad savers, it’s not their fault. When wages don’t keep up with costs, it’s hard for even middle-income workers to make extra money — so hard that Congress is looking to legislate for emergency savings accounts.
The two proposals were approved by separate Senate committees in June as part of the Strong Retirement Guarantee Act, also known as the Privacy Act 2.0.
One of the proposals – the Rise & Shine Act, now before Congress – would allow workers to opt into an emergency savings account that would automatically forgo 3% of their pay. . Employees can save up to $2,500 in the account, with any excess savings going to their 401(k).
The other proposal, under the EARN Act, would allow workers to take $1,000 of their 401(k) each year for emergency payments without the usual early withdrawal penalties. They will be required to pay it back within three years.
Find a private solution
The success of 401(k)s in getting Americans to save for retirement became the inspiration for Orman’s savings project, SecureSave. The system, launched in 2020 during the pandemic, allows workers to automatically set up an emergency savings account with an additional financial contribution from their employer.
“We came along and said, ‘Oh, my God, if that works for 401(k) plans, it should work with our emergency savings accounts, too,” says Orman.
Orman’s co-founder, Devin Miller, says that using your workplace as a platform for savings makes it a lot easier to actually take action.
“If you learn about thrifty behavior and they are offered an easier path to doing that through work, we’ve demonstrated with health care, in retirement, employees would be better positioned if it happened that way, Miller said.
“We were able to make a big impact on healthcare and retirement in this country by making it a workplace conversation and creating a safe place to do so. “
Automation is the key
Employers can offer SecureSave as a benefit to their employees. It will automatically deduct a small percentage of their salary and put it into an easily accessible savings account. Employers will also match some money – usually just a few dollars per paycheck.
While workers can also manually add money, Orman says it’s automation that makes the real impact.
“You can tell people from now until the end of the world that they should do something,” she said. “That’s why we need help doing it for them.”
According to Orman, it is working.
“You know what they all say, ‘Why didn’t I do this a long time ago? “” she said.
“When employers are a little supportive, it further increases the incentive to save,” says Miller.
“We typically see around $100 per employee per year. But it was made like a drip campaign. So if you put in $25, your employer puts in $5 – so it’s not a lot of money, but it creates an incentive to start and stick with it.”
Saving brings safety
Orman and Miller say they’re seeing results from companies that have implemented SecureSave – that people will be excited to see their accounts grow and that translates to a better quality of life.
Why should employers care in the first place? Because, they assume that a better quality of life will produce better employees.
“When you have financial stress, something happens and you don’t have the money to handle it. You think you are focused on work? ‘ Orman said. “Or are you in Financial La La Land trying to figure out what I’m going to do?”
90% of Americans are stressed about money, according to one research by Thriving Wallet, impacts both mental and physical health through mood, sleep and relationships.
“So when they have a place to go, they know the owner cares about them, they start taking care of themselves,” Orman said.
“They don’t even miss out on $25 a paycheck. And then a lot of times they come back and say I’m going to raise it to $30, then $40.”
With both SecureSave and the proposals before Congress, the focus is on low barriers to entry. Because of the hard part, Orman has learned over the decades, always convincing people to get started.
“Usually, people have to bottom out before making a change,” Orman said.
WATCH NOW: Full Q&A with Suze Orman and Devin Miller
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This article is for information only and should not be construed as advice. It is provided without warranty of any kind.
