Today's young singles are spending more and saving less than
their married counterparts. Are they digging themselves a hole with
no bottom or can a shift in the notion of how they spend, not why
they spend, keep them in good financial health for the future?
A paper published in the U.S. Bureau of Labor Statistics' 2011
Consumer Expenditure Survey Anthology highlights the gap between
singles and marrieds when it comes to live-now spending. According
to the paper, singles ages 21 to 29 years old, without children,
spend an average of $2,057 a year on restaurant meals (compared to
$1,423 for marrieds of the same criteria), $660 a year on alcoholic
beverages ($227 for marrieds) and $896 on clothing ($650 for
marrieds).
Regarding savings, in 2010, only 49.8 percent of singles under
55 without kids had at least some savings, compared with 62.2
percent of couples without kids, according to the Federal Reserve
Board's Survey of Consumer Finances.
Marty Martin, a financial psychologist at Aequus Wealth
Management in Chicago and a professor in the business school at
DePaul University, posits that singles "are engaged in magical
thinking -- they think 'I'll start saving when I get into a
committed relationship.' Singles think, 'I want to enjoy everything
right now so I'm going to spend it all.'"
So as singles delay saving and keep their spending habits fast
and loose, it doesn't take much work to maintain their lifestyle
while laying some foundation for long-term financial health. One
basic tool for singles is to know their spending methods, their
advantages, disadvantages -- and how to make them work for you
instead of against you. Here's a look:
Spending method: cash
Works best for:
Eating out and for small purchases.
It's the best way to stick to a budget: load your wallet with a
certain amount, and when it's gone, you're finished shopping or
eating.
"You're more aware of what you're spending," says Joe Lucey,
president of Secured Retirement Advisors, a retirement planning
firm in St. Louis Park, Minn. And Martin says, "If you do
cash-and-carry and you're not carrying consumer debt, in the
here-and-now you are engaged in financially healthy behavior."
Another advantage is that some merchants offer a discount with
cash, adds Sandy Shore, spokeswoman for Freehold, N.J.-based
Novadebt, a credit card counseling agency.
Cash's big disadvantage is that if it's lost or stolen, there's
no recourse.
Spending method: PayPal
Works best for:
Buying online.
Fans of e-boutiques such as Etsy and eBay -- where numerous
individuals are selling goods -- should consider paying with
PayPal. Why? PayPal, which transfers money from the user's bank
account or PayPal account to the receiver, is more secure than a
credit card: Merchants get their money and never see your credit
card digits or any of your personal information, explains
Lucey.
PayPal costs buyers nothing to use (though merchants do pay a
fee) and also allows buyers to pay for items in foreign
currency.
Spending method: credit cards
Work best for:
singles who like to travel, especially if using a card that accrues
rewards such as miles or hotel points, which can make travel more
affordable and more comfortable.
Some rewards cards have an annual fee; the key is to make sure
you're recouping that fee in airline tickets, hotel upgrades or
other benefits and using the rewards before they expire.
Credit cards can also get users out of a jam, says Shore. One
example: Shore's sister booked a 10-day cruise, which was cut short
by five days because the cruise ship company went bankrupt. The
trip insurance turned out to be useless, but the credit card
company reimbursed her for half the trip.
Some credit cards also cover part of the insurance on rental
cars. Such protection "is a very big reason to use a credit card if
you can pay off the balance every month," she says.
Another benefit to using credit cards: They can help a young
single build a credit rating, which will come in handy when it's
time to apply for a mortgage or a car loan. "You never know when
you'll need credit," Shore points out.
Spending method: debit cards
Works best for:
travel on a budget.
If you're taking a lengthy trip and want the ease and security
of plastic, but not the temptation to overspend, Shore recommends
setting up a checking account stocked with the vacation's budget,
then using a debit card linked to that account.
Use the debit card as a credit card -- make purchases without
keying in your PIN -- for an extra layer of security. Record
spending so you know how far you've dipped into your vacation
budget.
Spending method: don't spend, save
Works best for:
everyone.
No matter how they choose to pay for their indulgences, the
bottom line for singles is to save at least something.
By not saving, singles "don't realize they're stealing from
their future," says Mary Hunt, a financial columnist and author of
"7 Money Rules for Life." "They sometimes feel that the regular
money rules don't apply to them."
Those rules? "Stop spending money you haven't earned," Hunt
says. "Don't borrow more than you can pay -- that eliminates credit
card debt." Save part of everything you earn, she adds, and be
willing to donate some to charity "to get balance."