The Atlantic Article on Lack of Savings

[martyp]

It is easy to look back in hindsight and analyze the choices the author made in his lifetime. I tried to remember back to those decades and I'm not totally shocked at the choices he made at that time. Though I think having his wife quit work at time two income households were increasing was going against the grain.

I have to say in my own case, I never suffered a financial setback and I was never unemployed. No changing jobs. No medical bills. No financial burden by parents. I don't have kids.

The things I did right were common wisdom but not really part of a conscious plan.

I was both prudent and lucky.

 

[nash031]

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.

Buried in the article is the crux of the matter... one he should've highlighted more blatantly:

In retrospect, of course, my problem was simple: too little income, too many expenses.

 

[pb4uski]

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?

I would agree but it's not like it is a deep dark secret that carrying credit card debt destroys wealth... CC debt is the first thing any of the mainstream financial help shows focus on. It's not like it is a deep dark secret that people should live within their means and have an emergency fund. I'm sure if you talked to these people they would confirm that they know CC debt is bad and that they should live within their means and have an emergency fund. They just choose not to.... and while I respect their right to make those suboptimal choices I also think that they need to live with the natural consequences and I have little sympathy for them.

On subprime I have a bit more sympathy... I'm sure that there were some totally clueless people who believed it when the banker told them they could afford a house.... but I think there are a bunch of others who knew better but just wished it to be true and succumbed to the temptation.

 

[nash031]

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.

I think some people are truly unfortunate, run into major medical bills where they cannot reasonably expect them and don't have the income to support paying.

I think many more people allow themselves to be set up for less dire financial emergencies to crush them financially, whether by choice (sending kids to private college) or not (divorce). In the end, a lot of those boil down to poor choices.

But there are still some small number out there who truly through no fault of their own end up in rough waters. That's why I have a hard time throwing rocks and DW and I remind ourselves that not only have we been very smart to this point, we've also been pretty lucky.

 

[daylatedollarshort]

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

She has many good points but personally I always thought it was good to say "no" to many of our kids' status item wants. It didn't take a village for us to do that. I thought learning you don't always get everything you want in life was simply a part of growing up. Some of the neighborhood kids who didn't have budgets and were just given money whenever they wanted it are actually struggling more now as young adults. We had older cars than many of our neighbors but I don't think the kids were ever emotionally scarred by that.

 

[frayne]

Saw this on the nightly news last night and was shocked to hear that nearly half the people age 55 and older have little or no retirement savings. The story was on reverse mortgages and is worth a watch.

Could Getting a Reverse Mortgage Help You Save Money? - NBC News

 

[GrayHare]

The 47% number is deceptive. The article states, "The Fed asked respondents how they would pay for a $400 emergency. The answer: 47 percent of respondents said that either they would cover the expense by borrowing..."

I bet many of us would not have $400 cash in our pocket so we'd use a credit card instead. That's borrowing.

 

[Fedup]

I'm not sure I believe anything any more. Even my poor sister who always makes low salary to my family managed to have a large retirement account. On top of that she owns 3 houses in California, 2 paid off completely. Never married. She had nearly 3/4 of a million in her 401k when she last showed us. There were times in the past that she could only afford to put in 4%. She was unemployed often. But the trick is she invested 100% in stocks.


Sent from my iPad using Early Retirement Forum

 

[pb4uski]

Saw this on the nightly news last night and was shocked to hear that nearly half the people age 55 and older have little or no retirement savings. The story was on reverse mortgages and is worth a watch.

Could Getting a Reverse Mortgage Help You Save Money? - NBC News

I saw that on the news too but I'm still skeptical.... who knows whether the reporter is financially literate enough to understand these "new" reverse mortgages and decide whether they are ok or not. My suspicion is that reverse mortgage lenders or their shills planted the story with NBC.

 

[frayne]

I saw that on the news too but I'm still skeptical.... who knows whether the reporter is financially literate enough to understand these "new" reverse mortgages and decide whether they are ok or not. My suspicion is that reverse mortgage lenders or their shills planted the story with NBC.

Good point but I think Uncle Sam has stepped in and put the old kibosh some of the more unscrupulous RM lenders and capped how much a person can borrow against his home. Needless to say they have their angle and are going to make money out of the deal some way shape or form.

My surprise was that half of those 55 or older have little or no retirement savings.

 

[mpeirce]

...She was unemployed often...

Maybe it sounds counter intuitive, but being unemployed can be a positive financial experience.

I know that after the one time I was unemployed for a moderate stretch (over a year) that when I got my next job I was plowing a ton back into savings.

To things contributed in our case:

1. We learned to live on a very minimal budget to make our savings last longer. We just didn't see much reason to step up the spending after I got a new job.

2. It focused us on rebuilding our savings. We did have solid savings to fall back on, but afterwards, we really wanted to rebuilt it. And we just keep going.

 

[nash031]

The 47% number is deceptive. The article states, "The Fed asked respondents how they would pay for a $400 emergency. The answer: 47 percent of respondents said that either they would cover the expense by borrowing..."

I bet many of us would not have $400 cash in our pocket so we'd use a credit card instead. That's borrowing.

Well, hell, I'm up to my eyeballs in "borrowing" then. I buy everything on a credit card... which I then pay off completely at the end of the month.

 

[haha]

We do seem to be a self righteous bunch at times.

I get what you saying, and I don't think that these mess-ups are bad people. However, they are changing and debilitating our culture, and as you say it will bite us. In fact I think it has already bitten us, it is just that we don't yet realize that our cultural wounds will result in gangrene.

In a modern diverse social democracy, especially one where so many people cannot see beyond their noses, what bites one bites all. Bernie has one answer to the issue that you pose, but Bernie's fans forget that Russia tried this solution for ~100 years now, and what population flow that exists is toward our clearly dysfunctional society from their considerably worse one.

In older society an individual man or woman's fecklessness and stupidity caused their loss, or their children's. Today, it contributes to social gangrene.

As to my self-righteousness, I believe that when people's choices impact on me, which these obviously do, being a good person does not require me to approve of it, or to step in to help. Our government will confiscate some of my resources to hand out as they see fit, usually for no other reason than to enhance their hold on elections, no matter what high sounding spin they put on it.

Ha

 

[Fedup]

Maybe it sounds counter intuitive, but being unemployed can be a positive financial experience.

I know that after the one time I was unemployed for a moderate stretch (over a year) that when I got my next job I was plowing a ton back into savings.

To things contributed in our case:

1. We learned to live on a very minimal budget to make our savings last longer. We just didn't see much reason to step up the spending after I got a new job.

2. It focused us on rebuilding our savings. We did have solid savings to fall back on, but afterwards, we really wanted to rebuilt it. And we just keep going.

You maybe right. She was always annoyed that when she was unemployed she couldn't contribute money to her 401k.


Sent from my iPad using Early Retirement Forum

 

[FreeBear]

I think many more people allow themselves to be set up for less dire financial emergencies to crush them financially, whether by choice (sending kids to private college) or not (divorce). In the end, a lot of those boil down to poor choices.

But there are still some small number out there who truly through no fault of their own end up in rough waters. That's why I have a hard time throwing rocks and DW and I remind ourselves that not only have we been very smart to this point, we've also been pretty lucky.

+1

Exactly! DW and I worked hard and made good choices, most perhaps by luck or God's mercy, depending on your affiliation.

Our FIRE has a modest margin of safety, but it could be overwhelmed by a big hit like divorce or a huge health problem, especially if catastrophic or long-term. So DW and I say our prayers every night, and are very thankful for every day we wake up healthy together in retirement

 

[FreeBear]

This is what struck me the most from the article.

"In a 2010 report titled “Middle Class in America,” the U.S. Commerce Department defined that class less by its position on the economic scale than by its aspirations: homeownership, a car for each adult, health security, a college education for each child, retirement security, and a family vacation each year. By that standard, my wife and I do not live anywhere near a middle-class life, even though I earn what would generally be considered a middle-class income or better. A 2014 analysis by USA Today concluded that the American dream, defined by factors that generally corresponded to the Commerce Department’s middle-class benchmarks, would require an income of just more than $130,000 a year for an average family of four. Median family income in 2014 was roughly half that."

In short, much of the "middle class" aspires to a life that is twice as expensive as they can afford without going into massive debt. Perhaps this is obvious, but it suggests a strong sense of middle class entitlement, a sense of deserving basically twice as much as they can afford.

Throughout our lives of both good and bad "luck", one enduring trait DW and I have shared is that we are entitled to what we could earn by our efforts.

At least 1/3 of our friends are financially struggling "middle class". The common thread is that they all feel entitled to a certain lifestyle regardless of their ability to pay for it. Debt spans the huge gap between actual financial resources and the so-called "deserved" lifestyle. Stumbling along the cliff edge...

On the other hand we, do have some older FIRE'd friends. We are excited by 20% off day at a favorite restaurant or a new release movie at the matinee.

FB

 

[FreeBear]

I'm not sure I believe anything any more. Even my poor sister who always makes low salary to my family managed to have a large retirement account. On top of that she owns 3 houses in California, 2 paid off completely. Never married. She had nearly 3/4 of a million in her 401k when she last showed us. There were times in the past that she could only afford to put in 4%. She was unemployed often. But the trick is she invested 100% in stocks.

Millionaire Next Door and future real estate mogul...

Small hat, but many cattle...

 

[Dreamer]

I worked with a government agency dealing with the public. There are many people who do not have the intelligence to be able to choose a high paying career. There are many people who have average intelligence, including myself, who could not have been doctors or rocket scientists, even if someone else was footing the bill for our college education. Then, there are some people, that I wondered how they were able to make it through life at all. These were not people who were mentally disabled, but were below average intelligence.

Imagine what life in the US would be like, if everyone had high IQs and had the extremely high paying jobs. There would not be any restaurant or hospital cooks, LPNs at hospitals and nursing homes, farmers, grocery store workers, garbage collectors, teachers, custodians in schools, hospitals, hotels and nursing homes, water plant workers, etc.

What if no one wanted to have children, because of the expense of them and the work involved? What if everyone waited until they could truly afford to have children, before they had them. Many people would never be able to have children or their child-bearing years would be over.

What would such a country look like? I hope that I never find out. How would you feel if you could not make a high paying career choice, because you were not born with a higher IQ? What if someone told you that you could not become a parent, because you were only earning $30,000.00 per year? I have known many good people, who don't have a high IQ or high salary and who reared good children.

Yes, I do think that there are too many people, who live beyond their means. I sometimes shake my head, when I see how they conduct their financial lives. I see some people, who if they did not have bad luck, would have no luck at all. They can't afford a new car and then their old car breaks down and they can't afford to get it fixed. They can't afford to not get it fixed, because they will lose their job. They live where there is not public transportation, because they can not afford the rent costs or to buy a house, where there is public transportation. They put the repair on their credit card. Then their child gets sick and they miss a day or two pay. Not every one gets sick and vacation pay. Then the washing machine dies or whatever, and the debt snowballs.

I consider myself very lucky indeed. I had a job with sick and vacation pay. I was evidently born with a frugal gene and absolutely hate debt. Yes, I feel fortunate that I could easily cover a $400 expense or one that was much higher. I do feel sorry for many of the people who could not.

 

[rodi]

I think it's really easy for many of us to get judgmental... I know I put the J in in INTJ all the time.

I think the article in the OP and the article linked by Gumby both high light the human nature desire to provide the best for our kids - whether we can afford it or not... and the expectation of what a middle class lifestyle is has also gotten inflated.

I hit the lottery when it came to parents and upbringing... Dad made decent income (engineer) but lived frugally and I grew up in a household where budgets/costs were pinched constantly. Parents paid school costs - but had strings attached on the major and grades. I wanted to be a poli sci major, dad replied "not on my dime". I wanted to go to a small liberal arts college in the midwest - same reply from dad. The engineering degree from a state school turned out to be big boost in my adult life. Dad was right.

I also got lucky with no overwhelming medical bills during the years I was saving... My best friend wasn't so lucky and it took her years to pay off the debt she accumulated from her back surgery, her heart ablation, etc... Even with insurance - the out of pocket was still a burden. Add to that a bad marriage and divorce rights as the dot.com bubble burst... she was behind the eight ball financially for a while.

So yeah - it's easy to say folks should have made better choices... but not everyone struggling is there because of frivolous expenses.

 

[Winemaker]

During my w@rking days in the '90's, co workers who knew I did alot of investing, asked for money tips and advice. I specifically remember once "how do I make more on my money "?

I told him if he paid off any CC debt, he would be earning close to 12%. I asked where he had his cash now. He said he had $12,000 in the kitchen drawer, that's where his wife and 2 teenage girls got their allowances, and it was also their "emergency stash " for repairs and whatever. He carried over $10,000 in CC debt!

I told him to pay off the CC debt with the cash, and use the CC for their "emergency stash". He would hear nothing of it and thought it was stupid advice. He never asked me again.

 

[pb4uski]

Which just goes to show you: You can't fix stoopid.

 

[Midpack]

Maybe it sounds counter intuitive, but being unemployed can be a positive financial experience.

I know that after the one time I was unemployed for a moderate stretch (over a year) that when I got my next job I was plowing a ton back into savings.

To things contributed in our case:

1. We learned to live on a very minimal budget to make our savings last longer. We just didn't see much reason to step up the spending after I got a new job.

2. It focused us on rebuilding our savings. We did have solid savings to fall back on, but afterwards, we really wanted to rebuilt it. And we just keep going.

+1. Another example...

I lost my Megacorp pension at age 38, after 17 years of service. Seemed like a real blow at the time, but since I was management I had to put whatever positive spin on it I could with most of my 80 co-workers. Some of them really went ballistic!

We were already LBYM and maxing out our 401k's, but we both ratcheted back spending even more and saved that much more in taxable once the pension went poof. We reached FI about 12 years later, and I retired after 19 years (7 years after FI).

In retrospect, Megacorp probably did me a favor - we decided we'd better not count on anyone other than ourselves. Served us well in the long run...

 

[daylatedollarshort]

I consider myself very lucky indeed. I had a job with sick and vacation pay. I was evidently born with a frugal gene and absolutely hate debt. Yes, I feel fortunate that I could easily cover a $400 expense or one that was much higher. I do feel sorry for many of the people who could not.

I entirely agree with you on having empathy for those who are less fortunate and struggling through no fault of their own. I have a bit of a harder time understanding a highly educated person who spends his and his parents retirement savings on a wedding and expensive college educations when there are cheaper alternatives available that would better fit in his family's budget. I've been to pot luck wedding receptions that were a lot of fun and we have many threads in this forum alone on financial aid tips and good value colleges.

 

[pb4uski]

I do agree with you on having empathy for those who are struggling through no fault of their own. I do have a bit of a harder time understanding a highly educated person who spends his and his parents retirement savings on a wedding and expensive college educations when there are less expensive options. I've been to pot luck wedding receptions that were a lot of fun and we have many threads in this forum alone on financial aid tips and good value colleges.

+1 I just have a really hard time differentiating those who are struggling through no fault of their own (bad luck) who I do empathize with and those who are struggling as a collective result of bad decisions they have made for whom I have some, but less empathy.

 

[travelover]

............Imagine what life in the US would be like, if everyone had high IQs and had the extremely high paying jobs. There would not be any restaurant or hospital cooks, LPNs at hospitals and nursing homes, farmers, grocery store workers, garbage collectors, teachers, custodians in schools, hospitals, hotels and nursing homes, water plant workers, etc. ............

Do you seriously think that teachers are in the same intelligence range as garbage collectors and custodians? And that farmers are stupid? You must have never know people in either profession.