We Americans are an optimistic lot, except when it comes to one thing—our ability to save money. Today we have so many Americans trying to learn how to survive on minimum wage jobs. Consider this sad but telling fact: More Americans of modest means think they stand a better chance of accumulating $500,000 by winning the lottery than by patiently and methodically saving small amounts of money each year. That’s what a survey by the Consumer Federation of America discovered. Yet the odds against winning a lottery can be as much as 10 million to one. In other words, working-class Americans think they stand a better chance of being struck by lightning, with odds of about 700,000 to one, than ever amassing $500,000 in wealth. So much for the American Dream.
Similarly, middle- and upper-middle-class earners believe there’s a better chance of becoming “wealthy” by inheriting money than by saving it and investing it in the market, according to a separate survey conducted by Money magazine. Is it any wonder, then, that nearly half of all households, or 48 million families, have no more than $1000 saved in their banking accounts? And that an additional 12 million households have virtually no savings at all to speak of? To be sure, some families simply can’t save because they don’t earn enough. After they pay their mortgage and utilities, buy their food, and cover their basic expenses, there is literally nothing left to save. Others spend too much—or have too much debt to repay. Recently, aggregate household debt in the United States grew to more than 100 percent of personal disposable income, which explains why the national savings rate is so low: There’s nothing to save. Yet even among middle-class workers—two-thirds of whom admit they have have the financial wherewithal to save—the unspoken but real feeling is: “What’s the point?”
The point, of course, is to start taking care of tomorrow’s obligations— sending your kids to college, covering unexpected medical bills, and taking care of your own retirement needs—today. By the time tomorrow rolls around, it might be too late. While most of our money mistakes stem from being too optimistic—studies show that the vast majority of us think we are far better investors than we actually are — our inability to save is rooted in a deep-seeded pessimism. But this “glass half empty” outlook is just plain wrong, as I’ll explain in a moment. Our situation isn’t nearly as dire as we make it out to be.
Like an underachiever who sits in the back of the classroom and doesn’t even try to learn because he fears he won’t be good at school, tens of millions of us have given up on building savings because we just don’t think we’ll be successful at it. So we don’t try at all, and then it becomes a self-fulfilling prophecy. It also becomes a vicious circle: We don’t save because we don’t think we’ll be good at it. As a result, we find ourselves in a financial hole, at which point, even if we tried to do the right thing by saving money and paying down debt, it would be very difficult—and require tremendous sacrifice— to achieve our financial goals.