WASHINGTON (9/7/11)--Is it better to be debt free or have a robust savings account? Roughly 89% of people polled in August by the National Foundation for Credit Counseling (NFCC) say it's better to pay down debt, but NFCC says the answer is "both." Today's savings rate is 5% of disposable income, better than the 1% before the last recession hit, but much less than the 8.3% registered in January 1959, when the first savings report was made by the Bureau of Economic Analysis, said NFCC. History indicates that the rate of savings increases during difficult economic times as consumers cut back on purchases, and it declines during good economic times, said NFCC. Consumers use access to credit not only as a convenience but also as a piggy bank. "Credit replaced savings as the family's savings net, with some arguing that saving was unnecessary since they could charge or borrow their way out of any unplanned event," said Gail Cunningham, NFCC spokesperson. Now that consumers have learned their lesson about overspending, they must focus on saving in five key areas, said NFCC. The five areas:
* Rainy day fund for everyday emergencies such as home and vehicle maintenance, insurance co-pays and deductibles; * Income replacement account to sustain members if they experience job loss, major medical event, divorce and so on; * Down payment for a mortgage; * Known future expenses such as education, vehicles and vacations; and * Retirement.
"In bad times, people save out of a fear of tomorrow, and in good times they spend as if there were no tomorrow," said Cunningham. "To turn this savings/spending cycle into financial stability, consumers should recognize the unarguable importance of savings and develop a systematic plan to meet their personal savings goals." Credit unions can gear their promotions to each area to attract members' savings and provide information about financial goal setting.