Car companies, retailers and just about anyone who sells things for a profit should be frightened by 26 year-old Marcelo Bertalm¡o. For an American consumer, he has a very unusual habit: Bertalm¡o saves his money.
He doesn’t drive an SUV. He wears yesterday’s fashions and when he and his wife, Serrana, have dinner, it’s usually at the kitchen table, not a spendy downtown restaurant.
“We’re lucky because with our way of life we don’t tend to spend a lot,” Bertalm¡o said.
In October he moved to Minneapolis from Montevideo, Uruguay, with his wife to finish his Ph.D. in electrical engineering. Accustomed to living with a low income and with few luxuries, Bertalm¡o finds it easier to save in the United States.
“We’ve had to restrain ourselves a little bit,” said Bertalm¡o. “We figured out our fixed expenses — food, transportation and rent. Then, whatever money we have left over we divide over 30 days to find out how much we can spend per day.”
To avoid exceeding his daily allowance, Bertalm¡o makes due with 5 TV channels instead of 100. He plays his CDs on inexpensive audio equipment, carries a bag lunch and lounges on second-hand furniture.
To be certain, a frugal way of life requires a special frame of mind. Most importantly, style must follow practicality.
“We don’t mind that our furniture doesn’t match,” Bertalm¡o said. “If we can sit on it, that’s great”
But, it’s well known in the economic world that Americans, and especially college students, haven’t taken to frugality. The trend is to spend, and going into debt seems to no longer scare people.
Last month’s data on U.S. incomes and spending rates showed that despite rising incomes, Americans on average spend everything they make — and then some. The nation’s savings rate fell to negative 1.2 percent, the lowest level since the Commerce Department started keeping statistics in 1959. This means that if someone takes home $50,000 per year, they’re spending $50,600 with $600 in debt.
Average wage earners in Japan and China save more than 30 percent of their income. Mexicans and New Zealanders save an average of 17 percent.
For students whose loans tower over $600, it sounds like a paltry sum. But over the long haul, $600 per year builds up and so does interest.
While the low savings rate has been credited with driving the boom economy — loads of consumption mean big profits for companies– the inability to save is serious trouble for people trying to fund their retirement or their children’s education.
College students have an advantage when it comes to savings. Most don’t have expenses like a mortgage, two cars, property taxes, health insurance and clothes for the kids. Given this, it’s best to save now and, if possible, clear away some debt before monthly expenses climb.
“If you take your education as an investment, the biggest saving you can do is get out of college in four years and start getting a return on that investment,” said Chris Farrell, economics editor for the Minnesota Public Radio’s personal finance show, “Sound Money.”
Many times the problem is that parents send their kids to school without considering whether they’re financially prepared, said Farrell. A student might have good study habits, might be well motivated and prepared academically, but they might not be prepared to handle their most basic finances, he added.
For those students who have been able to save and who have a bit of money just sitting in their bank account, Farrell suggests that students get invested early in something easy like a money market mutual fund or an index fund, both of which require minimal knowledge of investments.