The Atlantic Article on Lack of Savings

[daylatedollarshort]

I came across this article today on middle class and above families living paycheck to paycheck, including the author of the article. I thought folks here would find it interesting:

The Secret Shame of the Middle Class: Nearly half of Americans would have trouble finding $400 to pay for an emergency. I’m one of them.

Many Middle-Class Americans Are Living Paycheck to Paycheck - The Atlantic

"Because I made too much money for the girls to get more than meager scholarships, but too little money to afford to pay for their educations in full, and because—another choice—we believed they had earned the right to attend good universities, universities of their choice, we found ourselves in a financial vortex...... paying that tariff meant there would be no inheritance when my parents passed on. It meant that we had depleted not only our own small savings, but my parents’ as well."

"We have no retirement savings, because we emptied a small 401(k) to pay for our younger daughter’s wedding."

 

[pb4uski]

There was an interesting interview with the author the other day on Marketplace.

If you had to come up with $400 right now, could you do it?

Enlightening what the guy admitted.

 

[Mulligan]

One thing is sure...There is always something to spend money on. Deciding what not to spend on is more difficult. I will give my daughter some credit. She just told me tonight she has saved $1000 in past couple months on a $8.50 an hour job, living completely on her own by herself. That is pretty good money management I think....Of course she wouldn't have to be so frugal if she hadn't walked away from college 12 hours short of graduation with the 4 years paid for by her mother and myself. But that is a separate story!


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[tulak]

I read the article and have some sympathy for the situation.

But personally, I'm paranoid. For me not to have $400 for an emergency would stress me out. This is part of why I save. I'm not frugal, at least nobody on this forum would call me frugal. But if I don't put away a good chunk of cash every month, then I'm not comfortable spending as much as I do.

I appreciate the author's honesty, but reading quotes about spending money for his daughter's wedding makes me cringe. I guess it comes down to what you value in life. I prefer to avoid stressing about money issues, so if I can't afford it, there isn't going to be an expensive wedding.

Spending money, at least for me, is a value proposition. If I can afford it and I think it's worth it, then I have no issues spending the money. I also find that as I get older, I'm more wise about making these choices. Maybe he's realizing this too, at least to some extent. But as he admits, in his case it might be too late. Either way though, he's probably still had a good ride. And there's no reason that he can't continue, as long as he's willing to keep working.

 

[Amethyst]

Even odder than going into debt for a wedding, is going into debt for a funeral.

 

[daylatedollarshort]

One thing is sure...There is always something to spend money on. Deciding what not to spend on is more difficult. I will give my daughter some credit. She just told me tonight she has saved $1000 in past couple months on a $8.50 an hour job, living completely on her own by herself. That is pretty good money management I think....Of course she wouldn't have to be so frugal if she hadn't walked away from college 12 hours short of graduation with the 4 years paid for by her mother and myself. But that is a separate story!

That is good money management for her current income. Maybe she will decide to finish college after working for a bit.

 

[papadad111]

Article was Irritating and whiney.... You reap what you sow. He knew the career he chose 30 years ago would not afford him the lifestyle but proceeded anyway. Not much sympathy in this case.

As for not having 400 for an emergency, I think the study had flaws but it Would not surprise me if it took more than half of people surveyed more than 30 days to come up with it.

 

[AtlasShrugged]

I too had little sympathy for the author. The thrust of the article was that the system is stacked against people, when the real culprit is poor decision making and personal behavior.

Blaming someone else is always easier than accepting personal responsibility. I'm impressed that this is not the general viewpoint of most people on this forum.

 

[marko]

Ah yes, another victim!

Lousy money management and a warped sense of reality ("...we believed they had earned the right to attend good universities, universities of their choice...) is never a good combination.

 

[haha]

It seems that perhaps sanity has left the room, except what is seen here on this forum.

I think we need a return to less forgiving conditions, where stupidity tends to result in bodily departure from the earth.

Ha

 

[Gumby]

But what causes people to make all those spending choices? Here is a thought provoking piece from Megan McArdle in Bloomberg that takes off on Gabler's piece and attempts to answer that question.

I do not often agree with Megan, but based on my observations around my neighborhood, she seems to be on to something.

Parents Are Bankrupting Themselves to Look Adequate - Bloomberg View

 

[pb4uski]

Article was Irritating and whiney.... You reap what you sow. He knew the career he chose 30 years ago would not afford him the lifestyle but proceeded anyway. .....

Your post reminds me of a decision that I made 43 years ago as I was graduating high school. My first choice of a career at that time did not pay that well but my second choice paid quite well. I decided that I didn't want to struggle financially in live and chose the more lucrative career.

Its interesting to think how my life would be different if I had taken that different path... I would have gone to a different college.... would not have lived in the city where I met DW, am frugal enough that I might have found a way to make a go if it financially but who knows, etc.

 

[donheff]

It seems that perhaps sanity has left the room, except what is seen here on this forum.

I think we need a return to less forgiving conditions, where stupidity tends to result in bodily departure from the earth.

Ha

We do seem to be a self righteous bunch at times. I read the article and think "There but for the grace of God go I." Almost half of our peers couldn't afford an emergency room visit or a car repair? I worry that situation could come back to bite us on our collective butts. And it certainly is fueling the current anger on both the right and the left. Many of us believe drug dealers are evil people preying on the weakness of our fellows but what about this quote from the article:

Part of the reason credit began to surge in the ’80s and ’90s is that it was available in a way it had never been available to previous generations. William R. Emmons, an assistant vice president and economist for the Federal Reserve Bank of St. Louis, traces the surge to a 1978 Supreme Court decision, Marquette National Bank of Minneapolis v. First of Omaha Service Corp. The Court ruled that state usury laws, which put limits on credit-card interest, did not apply to nationally chartered banks doing business in those states. That effectively let big national banks issue credit cards everywhere at whatever interest rates they wanted to charge, and it gave the banks a huge incentive to target vulnerable consumers just the way, Emmons believes, vulnerable homeowners were targeted by subprime-mortgage lenders years later.

These guys seem to be preying on weakness just like drug dealers.

Maybe those of us "smart enough" to keep our CC balances at zero are the just the same as the majority of people who "experiment" with crack or heroin and don't go over the cliff. Did those of us who fooled around with poly-drugs in the 60s know in advance we weren't susceptible to the risk or did we just luck out. Did those of us who racked up some CC debt in our 20s know we were emotionally primed to work things out or did we just luck out?

 

[marko]

We do seem to be a self righteous bunch at times. I read the article and think "There but for the grace of God go I."

Maybe those of us "smart enough" to keep our CC balances at zero are the just the same as the majority of people who "experiment" with crack or heroin and don't go over the cliff. Did those of us who fooled around with poly-drugs in the 60s know in advance we weren't susceptible to the risk or did we just luck out. Did those of us who racked up some CC debt in our 20s know we were emotionally primed to work things out or did we just luck out?

I've thought about that from time to time. However after several years on this forum, what I see is a majority of folks here who weren't born rich, smart or lucky.

What I see are people who are willing to delay gratification.

I see people who were NOT willing to keep up with the Joneses with the idea that it would pay off someday.

During the "building phase", that mindset is often met with harsh ridicule and condescension from one's peers. Those Joneses can also often be cruel on their way down to bankruptcy.

So, a little self-righteousness? Well earned in my opinion.

Luck? Sure. There's always the guy in the wheelchair who didn't deserve that. But just like your heroin example, most everyone knows the risks of overextending themselves and that "hope" is not a strategy.

There have always been just plain stupid people who do stupid things in life as well as financially. Most people here have clawed their way to financial stability; it's ok to be smug from time to time.

 

[donheff]

I've thought about that from time to time. However after several years on this forum, what I see is a majority of folks here who weren't born rich, smart or lucky.

What I see are people who are willing to delay gratification.

I see people who were NOT willing to keep up with the Joneses with the idea that it would pay off someday.

During the "building phase", that mindset is often met with harsh ridicule and condescension from one's peers. Those Joneses can also often be cruel on their way down to bankruptcy.

So, a little self-righteousness? Well earned in my opinion.

Luck? Sure. There's always the guy in the wheelchair who didn't deserve that. But just like your heroin example, most everyone knows the risks of overextending themselves and that "hope" is not a strategy.

There have always been just plain stupid people who do stupid things in life as well as financially.

I agree with you for the most part. I am one of those people who delayed gratification (and now profit from that). But I believe there is a significant aspect of that capability that is in our nature, i.e. to a degree we benefited from the luck of the draw. Not so much that we shouldn't be proud of what we accomplished but enough that we should remember that with a slight change in our genes or upbringing we might have gone another route. We might have been among the ??% who really can't tolerate alcohol, the similar percent that should never have messed with drugs, the ?? % of the pitiable 47% who never had it in them to resist the credit trap. We only know we have backbone in hindsight.

 

[daylatedollarshort]

We do seem to be a self righteous bunch at times. I read the article and think "There but for the grace of God go I." Almost half of our peers couldn't afford an emergency room visit or a car repair? I worry that situation could come back to bite us on our collective butts.

There's a recent article on that, too!

Why Luck Matters More Than You Might Think: When People See Themselves as Self Made They Tend to Be Less Generous and Public Spirited

Luck Is a Bigger Contributor to Success Than People Give It Credit For - The Atlantic

I do feel a lot of compassion for people who are mentally ill, ex-felons who no one will hire, and people born crack babies. DH and I have been trying to think of a retirement project or cause we could contribute to or volunteer for on that front.

I have to admit though, like many here, I also have a harder time with feeling compassion for educated people like the author with middle class and above incomes who simply want to live above their means. But who knows - maybe it is something genetic or hardwired that makes some of us not want to spend money as much as others. Many people here and other ER forums are INTJ types or close to it. Perhaps extroverts have a much harder time resisting status items they cannot afford because they care more about what other people think of them.

I also agree that billions of dollars spent on advertising for easy credit to spend on consumer goods and status items yet almost no advertising for savings and LBYMs are part of the issue as well.

 

[Mulligan]

"You are what your record says you are" is a famous quote from Bill Parcells. Translated to family finances its "You are what your salary says you are". And as Clint Eastwood said "Deserve's got nothin' to do with it".
For most middle class people, following those quotes would keep most out of trouble.
I am not saying that in a pontificating way, but just a matter of fact manner. I was a middle of the road type. A little bit of debt and a little bit of savings. But I do not self congratulate myself, as I know full well that my pension was my meal ticket to retirement. Yes, I always knew I would be getting that pension, but if I had not, I am not foolish enough to think I would have instead invested monthly the 14% that was confiscated from my check each month and parlayed it into early retirement.


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[Midpack]

There are legitimate exceptions, but not 47%. We need to keep them in mind, and the rest of us have some obligation to help them IMO (even conservatives like me).

Beyond them, almost anyone can live below their means. To my former co-workers who complained they couldn't save on their income, I asked how many Americans live on less, even much less than they make? Many of them were making more than some of their co-workers who were solvent (I was in a position to know everyone's exact income). The ones who couldn't bought the most house the bank let them mortgage, traded in for a new car every 3 years or so, the latest consumer electronics, and were 'entitled' to one or more costly vacations each year.

While it may be easier for higher income families, there are people who can come up with much more than $400 as needed at almost any income level.

There is no good reason 47% of the population couldn't come up with $400.

 

[daylatedollarshort]

There is no good reason 47% of the population couldn't come up with $400.

Yet, they can't. So maybe there isn't what many here would consider a "good" reason, but there is a reason, even if many of us here cannot relate to it.

 

[nash031]

But what causes people to make all those spending choices? Here is a thought provoking piece from Megan McArdle in Bloomberg that takes off on Gabler's piece and attempts to answer that question.

I do not often agree with Megan, but based on my observations around my neighborhood, she seems to be on to something.

I wonder if social media has effectively expanded the neighborhood, thus giving everyone more Joneses to keep up with. Someone sees Johnny From High School just bought a shiny new 328i that looks way nicer than their 05 RSX, and no way Johnny From High School is more successful than me!

 

[tulak]

I don't look at the author as being whiny, I think he's just pointing out a problem that afflicts many Americans.

"Choice, often in the face of ignorance, is certainly part of the story. Take me. I plead guilty. I am a financial illiterate, or worse—an ignoramus. I don’t offer that as an excuse, just as a fact. I made choices without thinking through the financial implications—in part because I didn’t know about those implications, and in part because I assumed I would always overcome any adversity, should it arrive."

If it affects almost half the US population, then that's a social problem that we should try to work harder to correct. Maybe try to increase financial literacy?

It would be great if this was done in high school. Force kids to take a mandatory class teaching basic finance. Everybody should be comfortable with percentages and calculating interest. Compounding interest should also be taught, in both directions. If done in high school, then you can also introduce choosing a college/major and the associated costs. With a few basic skills and exposure to thinking about money and how they relate to your choices, I think as a society we'd be better off.

 

[Mulligan]

I wonder if social media has effectively expanded the neighborhood, thus giving everyone more Joneses to keep up with. Someone sees Johnny From High School just bought a shiny new 328i that looks way nicer than their 05 RSX, and no way Johnny From High School is more successful than me!

When I didnt have any money in my younger days, I blew many dollars on cars. Now that I do have the money to buy cars I take perverse satisfaction in being cheap. Just this week I took my 09 Trailblazer into shop to put a new ignition switch in and mechanic said... "This Trailblazer looks brand new inside and out. Anymore all Trailblazers I see here now are all trashed out."

 

[38Chevy454]

Call me a self-righteous prick or whatever, but I have no sympathy for self-inflicted problems. Yes it takes some financial ducation and the ability to have a career that can support your given lifestyle. However, making the poor choices is not my problem.

The sad part is all these self-inflicted problem people will vote and select the person that gives them the most gov't handout. That leads to my wallet being tapped by gov't because I am responsible and make good choices.

 

[brewer12345]

What a pantload! Its really simple: Live below or at least within your means and pay attention to your balance sheet as much as your income. The stupidity of people like the author of this lengthy whine does not make me interested in doing anything other than letting them suffer the consequences of their choices.

 

[nash031]

When I didnt have any money in my younger days, I blew many dollars on cars. Now that I do have the money to buy cars I take perverse satisfaction in being cheap. Just this week I took my 09 Trailblazer into shop to put a new ignition switch in and mechanic said... "This Trailblazer looks brand new inside and out. Anymore all Trailblazers I see here now are all trashed out."

A similar anecdote... I like cars, I enjoy car shopping. I hate car purchasing because I know generally speaking I'm going to have buyer's remorse. That said, I'm OK with buying reasonable luxury because I know DW and I are going to keep it for 150,000 miles. (See the compact SUV thread where we're considering a BMW X1 as well as a Prius and Honda HRV).

Leads to the story: I've had my 2007 Infiniti G35 for going on 10 years now. It's running at 96,000 miles (I've deployed four times in that period and sometimes commute by bicycle). I replaced the AC compressor, otherwise routine stuff in that period.

My brother-in-law laughed when he saw it last fall and said, "You're still driving that thing?" Then he used it for a day and remarked at how good care I'd taken of it and how it was a really nice car still. I was pretty happy with that!

I always think that when buying a car, I aim for something I'll be happy with for a long time. I'm willing to put the latest tech on it for a few thousand more if I think that'll help keep the itch off to buy another newer car for a few more years. We spend the third most amount of time in our cars while we're working, so I'd like it to be nice, within reason.

I think the majority view cars as status symbols. I try not to, but I like nice.