We are a nation of consumers. If you head down the bread aisle, there are about two dozen types of bread choices, all with their own different brands and marketing. Pull back again and take note that we are a nation that has an entire aisle contributed to bread!
It seems absurd that the average American under the age of 35 has less than $6,000 to their name 1. But these numbers are sadly the truth of the matter.
Some people struggle for reasons external to themselves (health, student loans, sick parents) and it is a sad fact that this is more common than we think.
On the flip side, there are individuals out there who are simply irresponsible with their money despite being able to save more. They have dependents, a mortgage, and five-figure debt can still go out to buy a new Toyota and still be happy with that purchase knowing the avalanche of debt they have just acquired.
Saving and money management is critically important in life – you can’t expect to work until you’re 90 right? So why is it that some people don’t or won’t make the effort to save more money?
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1. Declining Mental Health
Mental health issues usually come with stress from different things, such as stress from work, school, and from family or personal problems. Some people are genetically predisposed to suffer from mental health discord.
Another common source of mental stress is financial problems, especially if someone has a huge amount of debts piling. Declining mental health can cause poor decision making, including poor money management.
Some people cope up with declining mental health by spending more money on things such as drinking, gambling, drugs, etc to feel better. Mental health issues can prevent someone from making sound financial decisions.
In return, this makes saving even harder even though the person can actually save a certain amount. To make it worst, a lot of people avoids dealing with finances because it stresses them out even more. It’s a very dangerous looping mindset to have.
A lot of mental health issues prevents planning ahead. Setting a goal and achieving it seems impossible for people who are experiencing battles internally with themselves. Most people will even feel helpless and ask questions such as “Why can’t I help myself?” and “Why can’t I fix my life?”
Fixing something starts with identifying the cause of the problem. One way to get out of this hole is to understand your own behavior, especially in your spending habits. Identify your bad spending behaviors, such as drinking when you’re stressed or binge eating to cope from burnout. Cut those habits and you’ll find that you can actually set aside money.
It is important to make yourself debtless first by saving money steadily. Free yourself from financial obligations by paying debts and find income sources to supplement your monthly budget. After paying your debts, and after relieving some of your mental stress, you can start saving for your future.
Having a positive mindset and believing that you can follow up with your financial plans is a step in the right direction.
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2. Drop In Income
A drop in income is one of the usual reasons why there are people who cannot save anymore (or are now not more inclined to set saving aside).
A paralyzing moment in finances is when you lose one of your income streams or experiences a sudden decline in salary. You abruptly need to cut a lot of expenses, and it would be even worse if you have a family and children.
How could anyone save when there’s nothing left after paying the bills? Your finances will have a better state if you always have savings in your monthly budget. If you don’t have anything to save, then you don’t even think about saving! Getting by at the end of the month is what matters the most.
First thing you can do is to cut expenses that you don’t really need. You might want to remove your beer allowance to make way for your savings. Do you always make your way to a very fancy coffee shop? Consider making your coffee instead. Cut down on spending for things that you don’t really need.
Another thing you can do if you don’t want to cut expenses is to find another income stream that can replace your old one. You can apply for a job online to supplement your real job, or you can start a side-business somewhere. What’s important is that including savings as one of your priorities no matter what.
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3. Delayed Gratification
Did you know that my major in college was neuroscience? Developmental neuropsychology to be exact. That stuff was like ocean’s breeze to me, easy breezy. Years later, I started cracking into behavioral finance and the topic of ‘delay gratification’ kept popping up. One particular study – a gem in developmental research, involving marshmallows!
The Stanford marshmallow study was a groundbreaking psychological experiment completed between the late 1960s and 1970s. The experiment involved little children (age 3 to 6) of equal genders. The children were told they can eat one marshmallow now or wait and get two marshmallows later. Basically, one treat now or two treats when the experimenter returns.
All the children received marshmallows either way but the children who can delay gratification got twice the marshmallows after 15 minutes of unsupervised waiting.
The videos were adorable. A struggling club of rug rats scooting their booty trying to fight the enticing marshmallow before them. Some children consumed the marshmallow the moment the experimenter left the room, some children bounced struggled and squirmed until succumbing to the soft gooey treat, and finally, some children were able to wait the entire time to get the second marshmallow. The children who were able to delay gratification had better life outcomes.
“[the children who waited] ended up having higher SAT scores, lower levels of substance abuse, lower likelihood of obesity, better responses to stress, better social skills as reported by their parents, and generally better scores in a range of other life measures.”2.
I bet money the children who were able to delayed gratification had fuller retirement accounts too. Good job kiddos!
4. Accumulating High-Interest Debt
Having a debt is not a bad thing, as long as the debtor knows the right time to borrow and pay the money back. Debt can sometimes be good for building wealth, especially in a properly done mortgage form.
Good credit is always a must as it makes lending easier and safer for both the debtor and the creditor.
But while debt is fitting for some situations, a lot of people end up with high-interest debt. For example, credit card loans tend to snowball against you when you can’t keep up with payments – suddenly the interest rate starts to balloon. Before you know it, you owe money bigger that suddenly becomes double your original debt!
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5. Learned Helplessness
When your situation looks bad, it is much easier to give up hope than look for another solution. Learned helplessness is a similar phenomenon where people attribute negative consequences to an internal characteristic that is perceived as stable.
For example, someone who has problems saving money associates the problem with “this is just who I am” then they will have a much more difficult time breaking the cycle. The individual who does not believe they have any control over their situation do not direct themselves towards a solution based mindset.
We used the same perception with others under the guise of fundamental bias. This is probably why personal finance mistakes (such as properly battling credit card debt) is so embarrassing. It’s easier to give up on something than to fight it.
6. Health Issues
O.K. not everything has deep-rooted psychological problems. Some people simply have bad health. Weak immune, weight, blood pressure, diabetes, allergies, etc. I have a select few among my peer group who question their own longevity beyond the age of 35.
Surprise, surprise – none of them saves! If you have consistent and bad health, why would you save or work towards an early retirement? Should you not just enjoy every day while you still have it?
I am not really sure how to respond to something like this. Admittedly, I do take my health for granted. I pride myself on having “Cockroach DNA.” I’m so proud of that term I want to copyright it, just like when Paris Hilton tried with “that’s hot.”
Cockroaches are gross but cool. They have thrived on the evolutionary periphery for 320 million years! I’m a cockroach. I grew up in the United States without any insurance for the majority of my life because my family was dirt poor. Yet I run like a well-oiled machine! I am a cockroach!
7. Higher Income Later
Higher income means you can afford to save more money later. Personally, I think it’s a total excuse and probably the worst offender on the list to have. Putting things off until later rarely works out.
Unless you are a starving graduate student who is banking on a six-figure salary after graduation, I see this mentality as a completely dangerous one. Who really knows what the future will be?
Later is always the perfect excuse and it’s starting to become my most disliked word. Referencing back to the sensitive areas of development in my previous point, I believe for many people who have problems holding onto money that it’s especially important to get into the habit of saving.
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8. No Habit Building
This one is simple, be persistent when it comes to money and saving. Some people are fastened to their pattern of spending.
It does not take long for a spending habit to solidify. Money habits develop and set during adolescence 3.
Debt is personal; admitting any fault can be difficult too. There is no real problem with overspending until the music stops. For individuals who tend to be stubborn with keeping their habits, it takes a massive shakedown to break the cycle.
9. Rich Parents
Just like the inheritance, there’s no certain way to confirm if your parents will still support you and your family in the next years.
Rich parents are subjective too. Wealth and businesses tend to come and go, there are companies who have seen centuries of operations, but it doesn’t mean that they are not vulnerable to the financial crisis.
Take the Singh brothers, they burned down $2 billion worth of empire which they inherited from parents. In the end, the Singh brothers saw their assets seized by banks because of unpaid loans. What happened to the Singh brothers is an example that having rich parents could actually be a bad thing. Because having money in their side has been the norm, they had fewer regards to money.
Although not all rich parents will raise their children entitled, it is still important to teach their children the importance of money management and savings.
If you’re waiting for your inheritance or managing the family business that your parents created, always make sure to save on a regular basis. This is also one of the ways to teach your children about saving their money and how they can have benefits for it.
10. Parental Influence
Great point contributed by fellow personal finance enthusiasts, Mrs. Groovy. Parental influence plays a huge factor in what we learn as children when it comes to money management. We tend to emulate our parents so if our parents were spendy, we tend to gravitate to spending as well. It’s what we know.
My husband and I both came from frugal households. My parents were frugal by force since the minimum wage in San Francisco doesn’t get you very much or very far.
Hubby’s parents are your traditional millionaires-next-door types who were conscious spenders and well prepared for anything.
11. Expecting Inheritance Payout
If you’re one of the lucky people all around the world who expects an inheritance in the future, there is a reason to believe that you don’t really need to save for your future.
After all, it has been guaranteed by your parents. If the amount is impressive, you might not work a day for the rest of your life once again. You believe that there is nothing wrong with taking out savings because you’re going to get a large sum of money anyway.
Believe me or not, you might want to rethink your mentality about inheritance.
First of all, you’ll deal with your parents’ death (or whoever your donor would be) before you can take the money, which could be heart-wrenching.
Second, your parents might actually spend the money themselves. You would be surprised at how much medical care cost for elderly parents. Likely your parents would prefer to enjoy the life that they haven’t been able to enjoy because of all the sacrifices they made (including saving their money!) in their youth. Even if you’re expecting to receive a large sum of money, you should also expect that there is a possibility for your parents to spend all their savings to enjoy their golden years.
Another factor is that you don’t know when you’ll going to get your inheritance, as one’s life is certain but unpredictable. There is a possibility that your parents will live longer than you all both anticipated, and to support their retirement in comfort, they will use their savings. With the health care costs and all other prices soaring, this might drain your parents’ retirement fund.
These are the reasons why you should not depend on the money from an inheritance. You don’t have the right for it. Saving your money can cushion your financial needs almost immediately, without having to wait for all the caveats of waiting for your parents to give you money. Being financially stable will take you a long way.
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I can vouch for this. My parents did not drop a pound of knowledge on me in terms of managing money. I saw they were frugal by force (being poor) and I copied their frugality. If it was not for that critical part of my life where I noted the importance of saving from my demonstrative parents, I would have spent most of my money too. A lack of financial awareness is forgiving. Financial awareness doesn’t hit everyone at the same time but a late start is better than no start at all.
13. Chanced Delusions
This part can be briefly explained by people’s irrational belief that instead of saving, they can do something else faster that will get them out ahead.
One of the most common delusions is faithfully betting on winning the lottery. A lot of people who believe that they will win the lottery will usually bet every day for years, never realizing that all the money paid on lotto tickets, when accumulated, can add up to a big sum of money.
Other forms of delusion are in the form of treating each of their lifestyle purchases as investments. Another type of delusion is when someone cannot distinguish the difference between a want and a need. Let’s say a woman wanted an expensive handbag because it’s currently on sale, she mistook it for a need and made a purchase
One tip to avoid unnecessary purchases is to wait and let those thoughts sit there for a few nights. If after some time, you still want the item, then feel free to make a purchase. If not, then you just avoided an unnecessary purchase.
14. YOLO Mentality
This was a great point by Ying, who wrote a follow-up post on this one about why millennials have a hard time-saving. Believe it or not, I fell victim to the same mentality too! From the start of college to a year after college…and I didn’t totally snap out of it until I turned 23 years old.
I even recall when I was 20 years old, I bonded over the “importance of being pretty” with a girl I shared a lab schedule with. I said “we’re only pretty right now – it’s not like we’ll be pretty when we’re 50. If I wanted that dress and I’m still a size 2, then I should be able to buy that dress guilt-free.” She nodded along in unison like I was the preacher for dumb vapid girls At the time I was foolish enough to believe it to be true. Shouldn’t I capture youth because youth is fickle and beauty will eventually fade? Why should I save if I need the money now to look my best?
Oh…boy…this is embarrassing.
Having just turned 27 years old now, I wish to turn back time and slap my 20-year-old self. Youth is something everyone gets to experience once but the rest of your life is something we’re all stuck with! That’s the right reason to save! Please kill off that YOLO mentality before it’s too late.
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What are some other potential reasons why someone won’t save? Do you think having health issues and questionable longevity excuses them from pursuing financial freedom?
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