Every discussion about dipping into your savings should arguably begin with some advice: “Try really hard to not dip into your savings.”
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Savings are meant to be just that — money set aside for emergencies, retirement, longer-term purchases, maybe a cushion to soften particularly sharp cost-of-living increases. Most of us break into our savings accounts earlier than planned at some point. Doing so too often or for the wrong type of purchases can have serious consequences.
Nevertheless, Americans do it — a lot. Some generations more than others.
Gen Z: Frequency of Dipping Into Savings
Take Generation Z — also known as the “zoomers” or just Gen Z — as an example. Members of the generation born between 1997 and 2012 raid their savings more frequently than millennials (1981-1996), Generation X (1965-1980) or baby boomers (1946-1964). That’s according to a Forbes Advisor survey released in August.
Based on the Forbes survey, Gen Z’s frequency for dipping into savings breaks down like this:
- Daily: 15%
- Weekly: 23%
- Monthly: 21%
- Quarterly: 14%
- Yearly: 3%
- Less than once a year: 6%
- Never: 18%
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Yes, 15% of Gen Zers said they break into money intended to be savings every day. For Bola Sokunbi, the founder of Clever Girl Finance and the author of the “My Wealth Plan” financial workbook, those numbers point to real trouble.
“This is a very serious situation in my opinion, because when people start relying on their savings to cover essentials like groceries, it’s a sign that their income isn’t enough to keep up with basic living costs,” Sokunbi said. “For Gen Z, this could mean delaying future goals like buying a home or saving for retirement. It’s a cycle that can be hard to break, especially if the cost of living continues to rise.”
There are also different takes on Gen Z’s habits around savings. Wendolyn Forbes, a CFP with Wealth Transition Finance — a member of Advisory Services Network, LLC — said the survey results don’t reflect her experiences with Gen Z.
“In my experience working with Gen Z clients, few dip into savings,” Forbes said. “Many of my clients are entrepreneurs who have a disciplined approach towards saving and spending, because they are focused on long-term goals. I believe that having an understanding of their cash flow makes all the difference.”
The Forbes survey’s findings for three other major generations include somewhat better numbers, but still some cause for concern.
Millennials: Frequency of Dipping Into Savings
- Daily: 7%
- Weekly: 14%
- Monthly: 26%
- Quarterly: 20%
- Yearly: 6%
- Less than once a year: 9%
- Never: 19%
Gen X: Frequency of Dipping Into Savings
- Daily: 6%
- Weekly: 9%
- Monthly: 22%
- Quarterly: 22%
- Yearly: 7%
- Less than once a year: 14%
- Never: 20%
Baby Boomers: Frequency of Dipping Into Savings
- Daily: 0%
- Weekly: 3%
- Monthly: 19%
- Quarterly: 21%
- Yearly: 6%
- Less than once a year: 24%
- Never: 27%
The Greater Cost of Raiding Your Savings
Liz Hagg is a Ramsey preferred financial coach and the founder of LH Personal Financial Coaching. When asked about the true cost of raiding your savings, she offered a considerable list of things you may be trading away. It includes:
- Peace of mind
- Paying off your home sooner, particularly if you borrow via a home equity line of credit (HELOC)
- More comfort in retirement — Remember, you may be taking from your future self.
- Achieving other longer-term financial goals.
“Then how does that all impact your daily life relationally –nsuch as your marriage — emotionally, physically?” Hagg asked. “That’s the deeper part of the onion and the true cost.”
Build an Emergency Fund
For Hagg, prioritizing an emergency fund is critical to avoiding these choices. According to the Forbes survey, about 28% of Americans across all generations have less than $1,000 in personal savings, including emergency funds. Experts recommend having three to six months of living expenses covered, if you can.
“I see a lot of generations taking out 401(k) loans and HELOC because they didn’t have a bigger emergency fund,” she said. “I like to call an emergency fund a SWAN fund — sleep well at night. Would you need that 401(k) loan or HELOC if you had an emergency fund?”
Once you have an emergency fund, it’s important to agree on what constitutes a true emergency. Hagg’s list includes expenses that are often truly unforeseen, such as losing your job, sudden health issues, car accidents or weather damage to your home. The COVID-19 pandemic is another huge, recent example.
Stick to a Budget
Beyond that, it’s vital to create a budget and stick to it if you want to keep your savings tucked away, in most cases.
“The biggest issue I see with all the generations is lack of a budget and truly implementing a budget the proper way,” Hagg said. “Planning the month before it starts, then following the plan. Most people use the same budget every month, but every month spending isn’t the same. Once they make the budget, they don’t follow it; they do what they want and wonder why the budget didn’t work.”
“The first step is to do the work of understanding your cash flow,” Forbes added. “Know exactly how much money is coming into your life and how much is going out. Fortunately, it is a lot easier to do this work today than it was years ago. You may use the apps available via your bank account or credit card for help tracking your income and expenses. Some apps use chatbots, and you may ask the chatbot how much you are spending.
“After you examine your cash flow, look for areas where you can easily score a win for your savings plan, then commit to the habit of a disciplined approach of saving a specific amount of money every month.”
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This article originally appeared on GOBankingRates.com: Here’s How Often Each Generation Dips Into Their Savings
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