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Dinner, concerts, and prioritizing fun: is the soft life as risky as it seems?

"In a weird way, soft saving is actually a very economically rational strategy."
Soft saving: a sound strategy or a risky waste of time?
Is celebrating the moment setting younger generations up for financial failure?
Posted at 3:54 PM, Jan 12, 2024
and last updated 2024-01-12 17:54:48-05

Do you focus on saving for the future or living in the moment? If you're part of that second group, then you're far from alone. Right now, the soft saving trend is exploding in popularity online.

"This is a pretty recent trend that seems to be emerging on TikTok and other forms of social media," said Andy Reed. The head of investor behavior research at Vanguard explains soft saving is a way to push back against the popular FIRE (financial independence, retire early) movement, instead focusing on experiences in the present.

"If you think about the FIRE movement as scrimp, save, do everything you can to retire early, this is kind of the inverse," Reed said. While it may seem radical, he argues that it's a financially rational strategy with deep roots in economic theory.

Reed says soft saving has a lot in common with consumption smoothing, which is an economic strategy that argues you should spend more money when you're young and earning less, then make up for lost time when you're older.

Even if the term is new, data shows the concept isn't unique to young Americans. "There's not a whole lot of difference across generations," Reed said, emphasizing that saving for the future isn't a human instinct.

"They're not squirrels, right? So, we don't necessarily have it in our DNA to save for the future."
Andy Reed

We asked him if this trend might make it harder for younger generations to retire on time. He told us Vanguard's data paints a pretty clear picture, and it's not bad news. "Gen Z is actually doing pretty well when it comes to saving and spending," Reed said. "They've gone from net spenders to net savers."

If you're working on building a financial plan that works for you, Reed says it's only natural to be stressed, because money is often wrapped up in emotions.

"The key here is that there's no one-size-fits-all approach to financial planning."
Andy Reed

For younger Americans, he suggests taking advantage of your employer's retirement match and enabling automated savings. That way, you can set it then forget it.

Next, Reed suggests you stay the course and let compound interest do the work for you. "In 40 years, that $1,000 that you put aside is now almost $15,000."