When a Penny Saved Seems Like a Miracle

ROSELAND, N.J. – Americans are known for being big spenders – not big savers. Surveys of household savings conducted by the Organisation for Economic Co-Operation and Development over the last two decades have shown a decline in American savings rates with the percentage of household income being saved dropping from more than 9 percent in 1985 to 2.3 percent in 2001. Projections for 2004 are somewhat better at 4.6 percent, but the world’s richest nation consistently lags behind a number of other countries when it comes to savings.

We know we should save more, but what’s the best way to do it? The members of the New Jersey Society of Certified Public Accountants (NJSCPA) help manage the finances of New Jersey businesses and provide personal financial advice to people throughout the state. Here are some suggestions from NJSCPA members on ways to encourage children and adults to develop a savings habit.

Ideas for Young Savers

• Start a change jar. Encourage your children to drop loose change in a jar. When the jar is full, open a savings account and have them continue to add to it. They’ll see first-hand how pennies can grow into dollars. Some area banks have change-counting machines with child-level controls, making it fun for children to participate in the experience.
  
  
• Establish goal-oriented savings. If a child wants to buy something expensive, turn it into a savings goal. Monetary birthday and holiday gifts can be put toward a bigger goal. You may consider offering to match the child’s contributions or to contribute toward the purchase price when a certain savings goal is reached.
  
  
• Open two savings accounts. Have your child make deposits in one account for long-term goals and another account for more immediate gratification.
  
  
• Make savings a requirement. Some families make savings a rule: Fifty percent of all gift money goes into savings.
  
  
• Charge your teenager. Charge your teenagers for rent, or car insurance, but put that money into a savings account for them.
  
  
• Put saving under e-control. Help your children to manage their money with electronic banking. Open a joint savings account for each child. Provide them with ATM cards for access and pay allowances by transferring funds directly from your account into their accounts. The NJSCPA member who recommends this approach says his children showed real interest in saving, withdrew cash sparingly and enjoyed watching their accounts grow. This method also allows you to monitor the accounts’ activities.
  
  
• Recognize the true goal. It’s not only about the actual money saved, it’s about developing self-control and financial discipline. Most savings accounts today yield less than 1 percent interest. So discuss with your child the principles you want them to learn.

• “Max out” your company savings plan. Many companies have 401(k) or similar savings program. Some employers also provide matching contributions, which build your savings more quickly. Be sure to take full advantage of any matching plans. If your company doesn’t offer a savings plan, ask for one.
  
  
• Use direct deposit savings. Use direct deposit for your paycheck if your employer provides it and specify that a set amount from each paycheck go into a savings account.
  
  
• Pay yourself first. Open an account and automatically save 10 percent of your pay. This idea was first popularized in a book, “The Richest Man in Babylon” by George S. Clason, in 1926. The book, still available today, describes the “success secrets of the ancients.”
  
  
• Educate yourself. Remember how expensive every “after-tax” dollar you spend really is. When you include the income tax and employment taxes you pay on each dollar, you actually are spending more than the amount on the bill. (It’s especially helpful to remember this when thinking about saving in a tax-deferred plan like a 401(k).)
  
  
• Sacrifice. Turn that $5 triple venti white chocolate mocha you get every morning into a plain cup of java and save the extra $20 a week. At the end of the year, you’ll have $1,000. Put it in a long-term investment of your choice.
  
  
• Take on “good” debt. Saving is nice, but don’t forget about leverage in your everyday life. When most homes are purchased, people assume a large burden of debt. Yet over time, people’s homes emerge as their single largest asset. So there may be times when spending is more important than saving.

April 29, 2004