August 2003

 

Build Wealth Not Debt
Cynthia Crawford, CrawfordC@missouri.edu

We are turning into a nation of excessive spenders! These are some alarming trends relating to our finances:

• More college students leave school early because of financial problems than leave because of low grades.
  
• It is possible more Missouri people will go bankrupt this year than will receive four-year college degrees.
  
• In 2002, the average household carried more than $8000 of debt on credit cards from month to month.
  
• In a recent national study on retirement planning, respondents were more likely to spend four or more hours planning for holidays (74%) or social events (57%) than for financial security during retirement (49%).
  
• The personal saving rate has shrunk alarmingly in the past 25 years, as too many Americans spend all they earn and then continue their spending by accumulating debt.

Missouri Saves is a new statewide initiative through University of Missouri Extension. The program provides financial education, money management skills, and financial coaching. Anyone who agrees to work toward a savings goal such as homeownership, an emergency fund, school tuition, retirement or debt repayment is urged to become a Missouri Saver.

Missouri Savers are encouraged to increase their savings, decrease their debt, and learn to build wealth. Saving even small amounts of money can add up. For example, by saving 50 cents a day from loose change, a person can accumulate $15 per month that can be added toward a savings goal.

One of the best goals most borrowers can make is to pay off consumer debt with double-digit interest rates. For example, if you have a $3,000 credit card balance at 19.8% and you pay the required minimum balance of 2% of the balance or $15, whichever is greater, it will take 39 years to pay off the loan. Even worse, you will pay more than $10,000 in interest charges.

Home equity is another important form of wealth building. A worthy goal is to buy a home and pay

off the mortgage before you retire.

Don’t exclusively depend on Social Security to fund your retirement. Social Security is a wonderful program, however, it was never intended to be your sole support during retirement. From Day One it was intended to be an income supplement to go with employer retirement plans and personal savings.

Because employers are tending to scale back on pension benefits and people aren’t saving enough toward retirement, more people should be thinking about working well past traditional retirement ages rather than planning to retire early. Others contemplating an early retirement should be planning to transition right on to a part-time job.

Missouri Saves urges people to participate fully in work-related retirement programs. Some employees even turn down free money from their employer by not signing up for retirement programs where the employer does some matching of dollars saved.

Finally, whether or not you have a work-related retirement program, save monthly. Your goals may be saving for a rainy day or planning ahead to have funds for replacing a refrigerator when it finally quits, a down payment on a home, school tuition, or retirement.

It costs nothing to become a Missouri Saver. The only obligation is to develop a specific savings goal and work toward achieving it. The Saver receives a quarterly financial newsletter with savings tips and strategies. If a brochure is not enclosed with this newsletter, please request one through your local extension center. To sign up, complete the back panel on the brochure and send it to the project address.

Missouri Saves is part of the nationwide America Saves initiative. For more information about America Saves, visit http://www.americasaves.org