Experts concerned about savings habits with spending increasing

By Sloan Schrage and Matt Gephardt, KSL TV | Posted - Apr. 16, 2021 at 9:35 a.m.

SALT LAKE CITY – The tough economy of the past year turned many Americans into saving machines. Now that the pandemic seems to be easing its grip, more consumers are ready to spend, and that has financial experts concerned.

You can see it at the airport, stores, restaurants and various other businesses. Traffic is picking up. In fact, one in five Utah small businesses surveyed in April 2021 in the U.S. Census Bureau's Small Business Pulse Survey said business is already back to normal.

"Folks are starting to spend money on those things that they pulled back on in the last year," said Ismat Mangla, content director for MagnifyMoney.

Mangla has been tracking savings habits and found the number people who saved dropped from 46% in February down to 36% in March.

The 10% drop was the first she has seen this year.

"The economic impact payments that a lot of folks received in March, also probably, made them feel a little bit more comfortable," she said.

In this tax season, the IRS estimates the average refund at $2,967. So, will those refunds be spent or saved?

A little of both, said Simon Zhen, senior research analyst for MyBankTracker.com.

"We found that most people who are getting tax refunds intend to save it or use it to pay down debt," said Zhen.

Zhen said he hopes those of us not yet on sound economic footing will keep saving and spend our extra dollars on items we truly need, instead of splurge spending on new cars and big vacations.

"Who knows that else could happen?" Zhen asked. "It's still very uncertain times right now."

If the pandemic taught us anything, he said, was that tucking money away for the unpredictable is crucial. Yet, only 22% of consumers are currently saving money for emergencies, according to the latest consumer savings index from MagnifyMoney.

"A lot of times we say three months is the minimum amount," said Mangla. "I would say, now I think it's smart to have even 6 to 12 months' worth of living expenses set aside in an emergency savings fund."

Build emergency savings

If six months' worth of living expenses is more than you can manage right now, even $1,000 will help you cover an unexpected bill without borrowing money.

When KSL-TV talked to certified financial planner Jenie Connors of Diversify Wealth in 2019, she recommended starting by cutting spending a little here and there. That means going through your bank account.

"Go in and look at it line-by-line," Connors said. "Where's my money going?"

Maybe it's going to an unused gym membership, a six-dollar cup of coffee every day, or to a subscription for an app you have not opened in months.

"There are a lot of tools that do it for you," said Shane Stewart of Deseret Mutual Benefits Administrators, another certified financial planner at the time.

He recommended apps like Mint that can connect with your bank and categorize your expenses. Others, like the app Trim, can finds unused subscriptions and helps you cancel them.

Another app, Joy, allows you to rate purchases as "happy" or "sad" to help avoid them in the future.

"To each his own on how to track that (expenses)," said Stewart, "The important part is this – you need to track it."

When we spoke to certified financial planner Shara Young about building an emergency savings account in 2018, she recommended setting up your checking account, so it automatically transfers money into your emergency savings once a week, or once a month. You can also ask your employer to direct deposit money into the fund straight from your paycheck.

"You don't even have to think about it," she said.

Young said the best savings goal is one that is realistic for you.

"Can you do a fourth of it? Can you start with that and stay focused?" said Young.

For example, if saving $25 a week, by 10 weeks you will have $250 stashed in your emergency fund. Even at $10 a week, you'll save $500 within a year.

"The consistency of doing it as a habit – time after time – will help you build that quickly as possible," said Young.

Where to find $10 or $25 a week?

At the time, Ann House of the University of Utah Personal Money Management Center said you can gradually cut your expenses.

"You don't do something overnight," she said. "You step down a little bit."

Let us say you eat out for lunch five times a week. House recommended to start reducing spending by bringing lunch to work one day a week instead.

"Then you step it down a notch," House explained. "I'm going to bring my lunch in two days."

The experts cautioned people should use their emergency funds only for, well, emergencies. A killer deal on a 4K TV or a Disneyland trip do not qualify.

If you're getting a big tax refund back, you've given the federal government an interest-free loan. However, if you change your withholding so your refund gets close to zero, that's money you can use the whole year to pay off debt, invest or build savings.

Sloan Schrage
Matt Gephardt


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