NEW YORK (MainStreet) Americans who save frequently tend to be more financially confident, said several financial advisors.
American consumers often don't understand the benefits of saving regularly and starting early, said Alexander MacAndrew, an investment director at Covestor, an online investment management company with offices in London and Boston.
People should get into "sustainable" personal finance habits such as saving $3,000 per year for ten years during their twenties and allowing the proceeds to compound at 8%, he said. If an investor saved that amount until he turned 60, it would result in a greater total than saving $3,000 for the 30 years from age 30 to 60 at the same 8% investment rate.
"Compounding works in both directions," MacAndrew said. "People are often amazed by the example when they see how much an investment portfolio can increase over time if returns are left to compound."
The same strategy works for debt, he said.
"If an effort is not made to reduce debt, it can turn into a larger burden at an increasing rate," MacAndrew said. "Taking action to reduce the overall debt and not just meet minimum payments should be the primary concern."Focusing on simply the return can create unnecessary risk, he said.
"Risk and return are highly related," MacAndrew said. "If an investment or savings product appears to offer an exceptional return, make sure you understand the risks you are taking."
Consumers continue to lack confidence in dealing with their finances with 26% of respondents in a National Foundation for Credit Counseling June online poll who said they did not want to deal with them. Only 8% said they had a good grip on their personal finances.
"People don't hesitate to call a professional when their car won't start, but are often reluctant to reach out for help when they experience financial difficulties," said Gail Cunningham, spokesperson for the NFCC. "If they are not embarrassed that they can't fix their own car, why should they be humiliated that they cannot independently resolve their credit problems? Personal finance can be complicated, thus there is no shame in admitting difficulty understanding how to best manage money."