Money Culture

20-Somethings Buck Pressure to Spend

Newlyweds Erin and Michael Gallagher

Michael and Erin Gallagher are just 26 years old but have made a strong start financially, socking away $50,000 by maxing out their 401(k)s while honoring a $20,000 budget for their October 5 wedding in downstate Illinois.

Jennifer and John Lucido, both 32 years old, now have $250,000 in the bank and have built a 2,500-square-foot home near Detroit.

By comparison, the typical U.S. household had saved $42,000 for retirement in 2010, according to the Center for Retirement Research, which funds this blog.

Both couples are members of that rare species of 20-something super savers, spurning intense peer pressure to spend money on consumer items, go out for dinner a lot, and run up their credit cards.  Neither couple got where they did the easy way either.  They worked hard, but they were also quick to catch on to important lessons about being frugal and saving – from their parents or from each other.

“I have clients in their 30s and 40s who don’t even have $200,000 in their 401k,” said Naomi Myhaver, a financial planner at Baystate Financial Services in Worcester, Massachusetts.

An August article in The Journal of Consumer Affairs suggests one reason people like them are so hard to find.  Young adults are extremely vulnerable to peer pressure to run up credit card debt so they can support a high lifestyle and social life.

In the study, 225 college students were asked questions such as whether they have “very strong” connections to their friends or “feel the need to spend as much as [friends] do on activities we do together.”  College students have an average of 4.6 credit cards and $4,100 in debt.

The researchers found that young adults who overuse their cards are strongly linked to social networks – that is, a close-knit group of friends – “in which they feel as though they are expected to consume at the same level.”

Eric Bell, who writes the personal finance blog, sees age 30 as the point where the savers diverge from the spenders.  Bell, who admitted to “partying with my friends” in his 20s, said he now notices that the non-savers may have had “nice wheels on your car when you were 22, but when you’re 32 are you still living in a group house.”

The Lucidos and Fullertons said they have no credit card debt.

The Lucidos said their debt is all backed by real estate – their home and rental properties.  When John Lucido graduated from high school, his parents gave him $20,000, which he parlayed into some rental properties that funded his college degree.  Jennifer, a spender in college, “bought a lot of beer.”  She began to mend her ways in her junior year, when she started dating John.  They began saving in their 20s, before they married.

Granted, they both have high-paying jobs.  But when they get raises – Jennifer, a procurement manager at General Dynamics, and John, who recently got a new job in human resources for a Michigan public school system – it goes in the bank.  “We have constantly gotten raises at work, but we never increased our lifestyle,” Jennifer said.

She is very aware that they’re not running with the spending crowd.  “I look at people our age, and they’re spending their paycheck plus they have credit card debt.  I guess I see different things on TV where these people are 55 years old, and they’re starting all over.  I never ever want to be there,” she said.  “I want to be able to retire early and enjoy things when you’re young enough to do so.”

Erin Fullerton, a Chicago events planner, credits her conversion to saver to a strong ethic at home.  As a child, she sometimes thought her family was “poor” because they didn’t go out to eat or buy a lot of new clothes.

But her parents paid for her college and now her wedding.  “We weren’t poor.  They were just saving,” she said.

She said her father, an insurance salesman, gave her a personal finance book and the $700 remaining in her college account as a graduation gift.

Michael Fullerton, a management consultant, said that his mother used to talk to him about money.  His parents would buy him U.S. Savings Bonds – $50 at a time – at birthdays and Christmas for college.

“Fifty dollars you can’t spend is not nearly as good as $50 that you can when you’re a kid.  They had the conversation with me about the value of having something for later,” he said.

The couple managed to serve sea bass and New York strip for 115 people on her parent’s $20,000 by holding their wedding reception at a nice restaurant in Bloomington, Illinois, where Erin grew up.  They related the details of their wedding while driving south on Route 55 to Bloomington in the black 2008 Honda Civic they purchased after graduating from college.

They have a small, inexpensive car and peace of mind.  “We could handle a job loss somewhat elegantly,” Michael said.

3 Responses to 20-Somethings Buck Pressure to Spend

  1. Mary says:

    I like the Squared Away blog a lot, but this post saddens me a great deal. I’m sure Michael and Erin Gallagher are nice people who really do care about their budget, but their reality is so far from the reality that most twenty-somethings face. As a twenty-something myself, I strongly believe that if most college-educated twenty-somethings were in the circumstances of the Gallaghers, our consumption patterns would be quite different.

    My argument centers around a well established premise of economics: the amount of income and debt you have strongly affects the shape of your consumption function. This is because if you have a low income and a large amount of debt, the marginal utility you get from a dollar of savings is less than someone who has a high income and low debt. With this in mind, let’s return to the Gallaghers and why we should expect them to have high savings relative to their peers.

    1. The Gallaghers are married.
    The Gallaghers are living on two incomes. This does not describe most twenty-somethings. Only 20% of 18-29 year olds are married.

    2. The Gallaghers have good jobs.
    Most college graduates start out making less than 45k a year.

    3. (This is the big one.) The Gallaghers have NO STUDENT DEBT.
    The average college student has over $25,000 in student loans. Again, this comes down to marginal utility. Why save when your debt load is already depressing your current and future consumption so much? Clearly the Gallaghers have exceptional circumstances given that they have no student loans and Michael got to invest $20k in real estate!

    [Also, can I just say that I think most of my peers would agree that a 2008 Honda Civic is a really nice car especially if they bought it new!]

    If a study comes out that says all other things equal student loans do not affect retirement savings, that my generation just spends more, then I will eat my words, but until then I will continue to feel incredulous that you ask my cohort to compare itself to this exceptionally lucky couple. Maybe someone at Boston College should do this study.

  2. Kim Blanton says:


    You’re absolutely right that the young adults I featured here are a rarity in other ways — besides a propensity to save. Indeed, they’re in a position to save.
    A financially challenging situation — so-so job and large student loans — is unfortunately the norm. Here’s a related blog post: Progress Stalls for Young Adults.

    Thanks for your comment.

    Kim, Squared Away writer.

  3. Mary says:

    Thanks for the reply and the link to the article!