Just heard a statistic that 70% of America is living Paycheck to Paycheck....

[Scrooge]

Don't they count cars, lawn mowers, your Franklin Mint collection of genuine imitation arrowheads with Elvis painted on them etc. as "net assets"?

Right, vehicles are listed on page 21 of the report and collectibles are on page 24 under "remaining nonfinancial assets (tangible items including artwork, jewelry, precious metals, antiques, hobby equipment, and collectibles)".

If so the bottom 40% definitely look paycheck to paycheck to me.

True, in most places selling your car is not a viable option if you are looking for a job. Also, if you own a house worth $700K and your mortgage is $650K, then on paper your net worth may be $50K, but how much cash are you really going to get after you pay your real estate agent, movers, etc?

 

[brewer12345]

True, in most places selling your car is not a viable option if you are looking for a job. Also, if you own a house worth $700K and your mortgage is $650K, then on paper your net worth may be $50K, but how much cash are you really going to get after you pay your real estate agent, movers, etc?

Probably little to none, but tere are (very foolish) lenders who will give loan you up to 125% CLTV on your primary residence.

 

[SteveR]

Here is a small section from the report that talks about savings rates.
Keep in mind the study is based on surveys and other less than accuate data to come up with all the figures in the report.


...A separate question in the survey asks about families’
more typical saving habits. In 2004, 7.0 percent
of families reported that their spending usually
exceeds their income; 16.1 percent reported that the
two are usually about the same; 36.1 percent reported
that they typically save income ‘‘left over’’ at the end
of the year, income of one family member, or unusual
additional income; and 40.8 percent reported that
they save regularly.
These figures are not much changed over the last
three surveys....

So, 7 percent of families in the survey said they spend more than they make.

16 percent of families in the survey said they spend about what they make.

36 percent of families in the survey said they save some each year from what is left over.

40 percent of families in the survey said they save some each month.


It would appear from these surveys then that those families that don't save some each month could be living paycheck to paycheck for the most part. Clearly 23% do not save. An additional 36% save if there is anything left at the end of the year...this is not the same as actually saving money at the end of the year so I would put these in the don't save category.

That leaves the 40% who say they save some each month. I would venture a guess that these folks could ride out a couple of missed paychecks without selling the house.

60% of families in the survey would appear to be living paycheck to paycheck or would certainly be in deep doo doo if they missed a check or two. While this is not the same as the 70% Oprah figure it is pretty close and is near what many here have reported from their own experiences.

Another aspect of the Fed. report was the data on debt. Seems the lower the income and the older one is, the less likely they are to have debt. More income=more chance of having some form of debt.

 

[Scrooge]

Keep in mind the study is based on surveys and other less than accuate data to come up with all the figures in the report.

When you look into it, a surprising amount of data in government reports on unemployment, income, net worth and such is based on surveys. Changes from survey to survey -- as long as the government uses the same methodology every time -- are generally considered more reliable, although that can change as well with fluctuations in respondents' financial situation. People on the rocks may deviate from the truth in ways that are different from well-to-do people.

It would appear from these surveys then that those families that don't save some each month could be living paycheck to paycheck for the most part.  Clearly 23% do not save.

Well, that would also include people like early retirees who may not be saving anything or spending more than they make, so you have to be careful Also, if a family is not "saving" anything but has a 5-10 year mortgage, then they may be accumulating wealth fairly rapidly.

Another aspect of the Fed. report was the data on debt.  Seems the lower the income and the older one is, the less likely they are to have debt.

It would take a special kind of bank to lend a substantial amount of money to a person who has little to no income and/or little to no chance of making enough money to pay it back

 

[Dreamer]

I think that there is a large percentage of people that is living paycheck to paycheck. I used to make waiver determinations to see if overpayments could be waived if it was not the fault of the person and if they were financially unable to repay it. I would look at the household income, assets and expenses to make the decision. I would have been horrified to have some of their bills, with the amount of income and assets in the household. At the same time, a lot of these people had cell phones, expensive cable bills with the premium channels, plus many credit cards with a lot of money charged. I feel that our schools should be doing a better job of educating our students about finances. This should be done before they graduate from high school.

I feel that even though the majority of people have created their own problems, they are clueless about how to dig themselves out of their financial messes. If I were to have a second career, it might be in helping people to regain their financial sanity.

My DH usually receives a bonus every year. The majority of his co-workers have their bonus spent prior to receiving it and it is spent on toys. One year, a lot of his co-workers were getting in ground pools, last year it was motorcycles, especially Harley motorcycles.

 

[Bimmerbill]

Dang! I'd love to get a bonus big enough to buy a Harley!

I gotta find a better paying job!

I'm shocked by the statistics. $7.5K net worth?!?! Even after graduation from college and working for $8 an hour I was never that bad off!

 

[uncledrz]

this is an absolutely fascinating discussion!

My personal observation is that the people I know personally or through business are not living paycheck to paycheck. Rather, they have either accumulated significant assets or have a pension/health insurance from public or private employment.

Some younger people, especially those with children still at home are in the paycheck to paycheck dilema, but most are not.

Yet, the statistics which have been set forth by many of the posters seem to support that there is some large percentage of our populace that is in this situation.
If that is the case, and we are more stretched and less secure financially, then as T-Al questioned, this may have a great impact on our ability to withstand higher interest rates as well as higher energy costs.

Very interest conversation.

 

[SteveR]

Dang!  I'd love to get a bonus big enough to buy a Harley! 

I gotta find a better paying job!

I'm shocked by the statistics.  $7.5K net worth?!?!  Even after graduation from college and working for $8 an hour I was never that bad off! 

A net worth of $7500 would not be all that unusual, especially in people just starting out in a career. A car with a low down payment and a long loan term will always have a negative net worth. Add student loans, CC debt. and no real assets and you can have a pretty substantial negative net worth. After my divorce I calculated my net worth at that time to be over -$100k and that was with a house equity. I had no cash, no investments and was saddled with the debt (13 CCs worth). Add to that loans on two cars (one was a lease so no value). I was 38 years old. When I graduated from college at age 22 I had no debt and no assets. For that brief period of time I had a net worth of zero. Even a few years later is was not over $5k. By the time I was 30 my NW might have been $10-15k due to house equity.

NW today is far different than what it was 15 years ago when I was in my late 30's. Not bragging here, just trying to put some of the comments here in perspective. You can have a good income but have a low NW; at least until you learn how to save and create ways to increase your NW. If you make $100k/year but have few appreciated assets and high debt you will still have a low NW.

20 years ago a $5000 bonus would have gone to pay some CC debt and to buy part of a new toy or whatever. Now it goes into investments and retirement plans with a few bucks left over for some minor spending on travel or a special gift or two. Big difference in spending patterns today vs then.

 

[Dreamer]

The bonus probably made the down payment or so. They probably financed the rest! I really have no idea how much Harleys cost and only know how much my DH's bonus is when he receives one. They are nice to receive, but we don't count on it!

 

[Leonidas]

Re: Just heard a statistic that 70% of America is living Paycheck to Paycheck...

Probably little to none, but tere are (very foolish) lenders who will give loan you up to 125% CLTV on your primary residence.

I had the radio on in the truck a couple of days ago and I heard a few minutes of "the mortgage show" on AM radio. The two guys on the show were hawking their company and sounded like a couple of used car hucksters.

No Job? No problem!

Living at home and not paying rent? Just have your mama or your auntie write us a letter, 'cause it's no problem.

Past foreclosure? No problem!

We want to work with you!

It went on like that for several minutes. At first I thought it was a skit, but then it hit me that these guys were serious. ARMS, interest only, 110% of appraised value - whatever you can think of these guys were selling it.

 

[Mwsinron]

They just end up strolling in and taking peoples houses? Either way it seems to be win win for them. Either the loanees begs family for money and they get paid or these places just plow through and take the house. Rough road for folks going down that path.