Think back to your earliest memories about money. It probably started with a piggybank that you occasionally shook to hear the rattle of the coins you stashed away. Perhaps your parents taught you to save a portion of your allowance for that special something. Or maybe you’re old enough to remember opening up your own bank account and watching your savings grow.
Now ask yourself, when did you first learn about investing? The memory may be vague, if it exists at all.
For many, “save” is the anchor verb because that is what you learned to do. You saved for expensive purchases, for college, for retirement, for a rainy day.
But only 6 percent of investors learned about investing from their parents, according to the BlackRock 2015 Global Investor Pulse Survey. For example, just one in 10 Americans were taught the importance of contributing the maximum to a 401(k) and starting the path to retirement preparation. This lack of education may be why 69 percent of Americans prefer not to think of themselves as investors.
How Americans Feel About Saving and Investing
Yet in today’s world, saving alone may not be enough to reach long-term financial goals. It’s possible to change your financial mindset, but first you need to climb inside your head to understand your views of money.
How Do You Think About Money?
During my years talking to people, I’ve seen three main financial types:
- Savers and investors
- Those who do neither
There are many reasons for the “neither” category. And while some people have limited resources to make ends meet, others just need to learn more about finances and feel comfortable about investing.
I’ve learned people usually save cash because they are either nervous about the markets, awash in inertia or saving for a specific goal. Most Americans (61 percent) see safety and security in savings. Meanwhile, 37 percent describe investing as risky, and 72 percent do not see it as a way to achieve their long-term financial goals. Therefore, they keep nearly two-thirds of their money (65 percent) in cash-based accounts.
Now, of course I’m not saying people shouldn’t save, especially for emergencies or unplanned expenses. But the rules have changed. Today, your savings have likely been earning next to nothing, and will probably continue to do so for a while. As a result, many people will likely fall short of reaching their long-term goals if they don’t invest.
People who are savers and investors think about both together as part of a financial plan, making sure they have enough cash on hand for short-term needs and investing the rest depending on their risk tolerance. As a result, this type of person tends to be more successful in reaching financial goals.
Graduating From Saver to Investor
You can potentially increase your chances of financial growth by overcoming your historical biases about money. Following these steps can help you become a successful saver and investor:
Think about the similarities of saving and investing
People who describe saving money as investing in financial markets have 22 percent lower cash allocations. And the sooner you start investing, the more your money could potentially grow.
Compare the risk of investment losses to the risk of outliving your savings
Make a plan and stick to it
Apply the same disciplined approach you have for savings toward investing by establishing a financial plan. People with formal plans are more confident that their wealth will last throughout their retirement (78 percent), as well as meet current financial obligations (85 percent).
Get Financial Advice
You don’t need to already have wealth to seek financial advice from a trusted professional. Newer online advisory services, aka “robo-advisors,” can be a cost-effective way to start establishing a balanced portfolio. And it’s okay to ask knowledgeable relatives or friends their opinions.
I’ve seen it time and again: The more we all become educated and experience the positive rewards investing can bring, the more we will establish new and positive memories about money.