I'm doing what my parents told me. Why isn't it working?
- Your parents taught you what their parents taught them, plus a bit of their own experience. The world moved faster than the advice.
- Back then, a savings account could keep up with prices, and a home cost about half as many years of income as today.
- The rules changed, but nobody updated the advice.
Someone who loves you told you to put money aside, keep it in the bank, and not touch it. They weren't wrong. They were passing on what worked for them, which is what their own parents passed on to them, plus a little of their own experience. Advice like this travels slowly, a generation at a time. Money changes faster. When your parents were your age, a savings account showed a reassuring number every year, and for a while it really did keep up with prices. Today the same account pays close to nothing, while prices keep rising. You're following the right advice for a world that no longer exists.
Let's make it concrete
Marc is 25 in the early 1990s. He saves $10,000 and leaves it in a savings account for ten years. His bank pays 5% a year, and prices rise about 3% a year. After ten years, his money buys about 22% more than when he started. Saving works, so he believes in it.
Thirty years later, his daughter Jade is 25. She does exactly what he taught her: $10,000 in a savings account for ten years. Her bank pays 0.5% a year, and prices rise about 2.5% a year. After ten years, her money buys about 18% less than when she started.
Same habit, same discipline, same amount. Marc's money grew. Jade's money shrank. Nobody did anything wrong. The world changed, and the advice didn't.
Marc was lucky, too. Over the long run, savings accounts have mostly just kept pace with prices, at best. Many parents happened to save during an unusually good stretch, which is exactly why the advice stuck.
What changed
Your bank pays you a little for keeping your money there. That's called interest. When your parents were young, it was high. Then it shrank, year after year, until it hit almost zero. Prices kept rising anyway. So the money in your account stopped keeping up.
Further back, money was tied to gold and held its value for decades. That's where "just save" was born. Back then, every currency was tied to the same anchor. Now each central bank steers its own, and the interest rate is the steering wheel.
And then there's housing
Around 1970, a typical existing American home cost about two and a half to three years of a typical household's income. Today it's about five. That's roughly twice the work for the same roof.
And that's just the average. San Francisco shows how far it can go: a home there cost about three years of income in 1970. Today it's about eleven to twelve. It's an extreme case, but it's a real one, and the people who keep a city like that running, teachers and nurses, often can't afford to live in it.
Isn't this a bit unfair?
Partly, yes. You did what you were told, and it doesn't work the way it used to. But nobody tricked you. Your parents passed on what worked for them, and many are only finding out now that it stopped working, often from their own kids.
The rules changed slowly enough that almost nobody noticed. Some people feel it harder than others. That part is unfair. But now you know why it happened, which already puts you ahead of most people, including the ones who gave you the advice.
Keep the habit, change the tool
Your parents got one thing right: saving is a habit worth keeping. What changed is where the money should sit. A savings account is still the right place for next month's rent and for emergencies. Money you won't touch for years needs a place that can keep up with prices. So where should it sit? That's next.