Most of the financial services industry marketing and service options are geared toward individuals approaching retirement. A recent paper published by leaders at the George Washington University School of Business sheds light on the major problems with financial theory and young adults. Although the data analyzed and the overall findings are usable for all demographics, the target market audience was comprised of recent graduates and other young professionals. The main thesis of the research and analysis discussed personal savings relevant to debt reduction and specific event planning.
A final version of the publication was prepared for use by the National Bureau for Economic Research, an organization designed to review and analyze the general economic state for the nation as a while. In particular, the paper focused on the approach to personal savings. In a very transparent manner, the researchers made direct comparisons relative to personal savings accounts and revolving debts. It quickly became clear that increasing a monthly savings allotment instead of paying off high interest credit card debt was not the best option. The cost of interest paid out toward outstanding debt obligations greatly outweighed the cost of interest earned on the personal savings account. Clearly, these individuals should be more focused on choosing the debt with the highest interest rate and putting all available funds toward that item before moving on to the next or shifting their focus onto additional personal savings.Reversing thought patterns, cultural traditions, and personal behaviors is not a fast process. Most of the individuals in the study had been correctly taught to save money, or to “pay themselves first.” This advice, and the encouragement to create an emergency savings account, is both useful and practical. The amount and consistent rate of personal savings should gradually increase over time, but not at the expense of persistent looming debt. The trade off is that the minuscule amount of interest earned on a personal savings account is quickly gobbled up by the high interest and high balance of outstanding debts. Savers may be better off making the decision to put additional funds toward debt obligations rather than into an interest bearing savings account.