"The Fed asked respondents how they would pay for a $400 emergency. The answer: 47 percent of respondents said that either they would cover the expense by borrowing or selling something, or they would not be able to come up with the $400 at all. Four hundred dollars! Who knew?"
http://www.theatlantic.com/magazine/archive/2016/05/my-secre...
1 in 3 Americans has $0 saved for Retirement, and 56% have less than $10,000
For example, in my financial situation, I would borrow to cover an unexpected $400 expanse. However, that is because I have a prior agreement with my parents that they would loan me (at 0% interest) to cover unexpected expenses, so I have no reason to keep a surplus of money fully liquid when it could be earning better returns elsewhere.
My parents, for their part, base their savings on the assumption that they would cover unexpected expanses from their line of credit secured against their house. This, again, is not because they do not have the money to set aside for emergencies, but because they think that the opportunity cost of keeping the money liquid outweighs the cost of occasionally paying on credit. As it happens, they could pay for a $400 emergency out of pocket, but that is mostly because they are too rich to micromanage at the $400 dollar level.
With respect to retirement savings, I do not think that stat is as bad as it first appears (although I do think the typical American is underrepresented for retirement). The basic financial story is:
1) take on debt for big, lifetime purchases (education and a house).
2) Pay of debt
3) Accumulate wealth
4) Retire and live off of accumulated wealth
Given this, it is not unreasonable that young people would have no money set aside for retirement, because it might be more efficient to use that money to pay off debt.
That's fantastic you have a safety net with your parents, with amazing credit, that can borrow at good rates, at any time.
What about the people paying double digit interest rates to get a crappy used car? People who can't borrow money because of no credit, without their parents to cover extreme interest rates?
It's great that some people have the luxury to somehow not have an emergency fund, but a huge portion of the population is unable to do that. The last thing they care about is return on investment in savings-they need money to get food next week.
Yeah, forget the saving account. Retirement is going to be the real issue. Lot of people going to be eating dog food in the future.
Pensions for anyone under 45 are pretty much non existent, with a few exceptions. Even if they are, the companies tend to screw with them. Our company just froze the salary for pension calculations (not that I have one), so somebody could work another 20 years and retire at a percentage of today's pay.
At least I get a crappy annuity and 401k matching. New hires now get neither.
However, the truth is that a majority of Americans worry about how to pay food and rent every month. This is not because they are all irresponsible human beings, but because American society makes it really freaking terrible to be in the bottom half. Retirement is out of reach; saving for an emergency has to fight with rent has to fight with prescription medications has to fight with clothes for your kids.
I guess the question I would have is "What is the 10th/25th/Median percentile of net-liquidity" and "What is the expected downstream third-party income from Social Security/Pensions/etc..." expected. That paints a fuller picture of people's financial stability, and also identifies how important Social Security is to their wellbeing.
If I had to pony up $400, I would definitely use a credit card because its what I have on me.
I feel the descriptor of middle class has moved away from X% disposable income and that you are describing a 'traditional' middle class. I do not live in the US however and could be tainted by my personal experience in AUS.
Somewhat tangentially, it always surprises me that people continue to use checking/savings accounts from banks like Chase, Wells Fargo, Bank of America, etc. when they pay terrible interest rates, don't reimburse ATM fees, and sometimes actually charge you for debit cards and/or paper checks. If it's the thought of not having access to real brick & mortar banks that scares you, Schwab is a great option (though they pay much less interest than the top online ones).
Ally I put real savings in.
Chase I use when I sell something in Craigslist for $600 and need to deposit cash. I have no good way to get cash into Ally.
So Chase is just a convenience bank for me. Also used it for the time I needed a 25k cashier check to buy my house. Ally was going to need to pay a wire fee, vs transfer and cashier check was free with Chase.
Overall yes I hate Chase.
We have a mutually abusive relationship.
If you have your paycheck auto-depositied, you can avoid most/all of the fees.
Also, without researching, I'm just guessing that a bricks and mortar FDIC regulated bank is reasonably safe (in the United States). I would have to sit down and do somewhat more research to be certain of an entity like Ally.
Note, these are all personal observations - the original post was indicating they were surprised that people put their money in Wells Fargo/Bank of America, etc... instead of Ally. I was just trying to supply one (personal) reason why we do it. It's entirely possible that my biases/conservative nature make those reasons ridiculous, but they are still honest.
Just for the record though, Ally is FDIC insured/regulated (and I'd guess that's true of most online banks that people actually use). I know you didn't explicitly say otherwise, but I wanted to make a note of that for anyone else who might be worried about that specifically.
For someone like you, I'd reiterate my recommendation for Schwab. But if you never pay fees as is (even from ATMs) then I could see how it may not be worth the time to switch.
Yes, Wells Fargo is a bigger company but Ally is no small potato.
That might be an answer to you but it's not an answer to anyone asking. What's so terrible about Ally?
> ...asked 7,000 people around the country how much money they had set aside in savings accounts for the future...
I think that would include CDs and other savings vehicles. It is unclear if that counts retirement accounts.