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

[NinjaPigeon]

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

We call how long you can live without your paycheck your wealth. Its nice when your wealth is atleast measured in yrs and not hours

I like that formula. I'm not doing as well as the rest of you, since I only just started working on it... But if my math is right, without tapping into my IRA, if I had to liquidate the rest of my savings, I could go 1 year 10months before I hit bottom.

 

[Helen]

Bankrupt Maxed out in America:

http://americanradioworks.publicradio.org/features/bankruptcy/

 

[IHateCNBC]

I am noticing people are getting their credit card declined at points of purchase.  Three times this week I have heard the cashier quietly ask for another card. 

 

[Cool Dood]

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

Not quietly enough

 

[thefed]

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

i FEEL like im paycheck to paycheck, but after callcs, with NO income, and liquidating my SMALL retirement portfolio, I figure I coiuld survive 12 months...then be flat out BROKE

BUT, I could then sell my 2 investment properties and clear 30k or so to make ends meet for a bit

(when I was younger, I thought the term was making ends meat....sorta like making cow butt meat....dunno why)

 

[youbet]

Thanks C-T for the Oprah definition.  That gives some clarity to the Oprah 70% figure.  Clearly, she wasn't refering to liquidity issues but rather to "no food on the table" issues.

I think it's important to understand the difference between folks with liquidity problems (money tied up in houses, cars, collectibles, land, airplanes, jewelry, retirement plans, etc.) and someone who is just plain broke.  Sadly, I think it's the latter situation that is plagueing many of our fellow citizens today.   :-

If it was just a matter of selling off non-financial assets, and there were plenty of them, to make ends meet, not so bad, eh? 

 

[Cool Dood]

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

You bet.

 

[SteveR]

Living paycheck to paycheck according to the Oprah definition is what I had in mind. If you can't make the house payment or the rent, can't buy food, can't make the car payment, can't make the CC minimum payments (which are higher now) and can't pay all your bills that are currently due because you do not have the funds to do so nor cash or cash like instruments you can convert to cash, then you are screwed. All it takes is a higher than expected power or gas bill and you are juggling bills to see who gets paid now vs from the next check. If the next check never show up you are blued, screwed and tatooed.

I used to be there myself. My kids in law are darn close and other family member and friends are only a couple of paychecks away also. It is not a good place to be and it becomes a major ordeal to get out of the never ending cycle. Talk about stress! This was one major reason for my divorce. I live on the edge for almost two decades and never had more than a few hundred $ in the bank; no savings, no investments, no bonds, just bills and debt. Yuck! gives me heartburn to just type this.

I consider myself a bit of a Cinderella story or sorts. I know I never had it as bad as many do but it was bad enough. It is amazing what a little education and a lot of persistence can do for your net worth over time.

 

[haha]

Steve R, your's is a great story of triumph over adversity. Congratulations!

Ha

 

[macdaddy]

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

I find 70% hard to believe. The top 20% of households have income of around $100k at the low end. This means that most of them probably wouldn't have to "borrow money to eat" if they missed a paycheck or two. So that means that only 1/8th of the other 80% of the country has any measurable amount saved. Sorry Oprah I don't buy it. Doesn't 30%+ of the country have IRA accounts of more than a few thousand dollars? Maybe they have no efund but it's not quite paycheck to paycheck as she described.

 

[FlowGirl]

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

I find 70% hard to believe.  The top 20% of households have income of around $100k at the low end. 

I don't know. Oprah's three "Debt Diet" families make 70K, 90K, and 100K and all are in serious financial trouble. I think one family had a second mortgage that was over a year past due and another family had several bills (10K and up) that had gone to collections. One guy was stunned to find out that their student loan debt was 70K instead of 30K. How can people not even know how much they owe?

I'm not sure if these families are typical, but obviously income is no barrier to living paycheck-to-paycheck.

 

[Andre1969]

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

I could probably go for quite a few years without a paycheck. And I'm sure most people here could do that as they are working towards not having a 'paycheck' for their lifestyle.

I ran this calculation a couple months ago, before the stock market hiccupped. I think I estimated that if I quit my job immediately and never went back to work, the money would run out when I'm 53. I'm 36 now. That was assuming a low return of like 2-3% above inflation, IIRC.

On a brighter note, I did calculate that if I could maintain a return of about 8.3% above inflation, then the money would last indefinitely! I'm not about to test the theory, though.

 

[ERD50]

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

I'm not sure if these families are typical...

Keep in mind, this is 'Oprah' we're talking about. Just like newspaper headlines, she goes for the dramatic story. And she makes a good buck at it!

I still think there is quite a bit of truth to it in general though, and if you scale down the drama a bit, some pretty large % of families would fit these descriptions. I have no doubt that some significant % of +100K earning families live pay-to-pay.

I've seen it - earning some big bucks does not mean you have a clue about personal finance. It can also give you the feeling that you can just afford all this 'stuff' - after all, you make a lot of money, right? Spend, spend, spend.

-ERD50

 

[justin]

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

The definition for 'living Paycheck to Paycheck' given by Oprah was. If you lost your paycheck, you would have to borrow money to eat. You had no savings at all. No retirement savings, no Stocks, No bonds - nothing.

I imagine more than 30% have a pantry and fridge slam full of food. My guess is my food would last close to a month before it was gone - and that's after I've intentionally tried to stock the pantry with "just-in time" purchases.

Therefore, without considering general levels of savings, I doubt Oprah's 70% figure is accurate. By her definition, I'd guess 20% might live like this - if the paychecks stopped, they'd be out of food within 2 weeks. Although even this ignores the support provided by unemployment insurance. That would give you enough money to eat (not sure about paying the rent/mortgage!). Then there's the fact that there's a good chance you can get another job within 2-4 weeks to get the paychecks flowing again.

 

[TromboneAl]

OTOH there are a lot of paycheck to paycheck people who are as ignorant about shopping/eating as they are about finances. Their fridge contains some six packs, pudding paks and lunchables. Cupboards: pop tarts, Pringles and hamburger helper. They go shopping several times a week.

 

[Texas Proud]

Thanks C-T for the Oprah definition.  That gives some clarity to the Oprah 70% figure.  Clearly, she wasn't refering to liquidity issues but rather to "no food on the table" issues.

I think it's important to understand the difference between folks with liquidity problems (money tied up in houses, cars, collectibles, land, airplanes, jewelry, retirement plans, etc.) and someone who is just plain broke.  Sadly, I think it's the latter situation that is plagueing many of our fellow citizens today.   :-

If it was just a matter of selling off non-financial assets, and there were plenty of them, to make ends meet, not so bad, eh? 

But a lot of the people with liquidity problems are the same... they have a house note, but because of a HELOC not much equity... both (or more) cars are negative, no land, no airplane, probably some jewelry, but not much in their retirement plans (I can not save anything with all that I owe!!!)... I have seen these people... they make a very good salary and they are the same as the low income people you are thinking of.. if they lost their paycheck, they will be borrowing money to put food on thier table AND have a lot more debt to worry about...

You seen to talk more of the Donald Trump type people who are in a real cash flow issue, but have a high net worth (that is debateable with the Don)...

 

[laurence]

My friends clear 120k+ in household income, rent their home, have less than one paycheck in their checking, no savings, debt on their credit cards, and their only real asset is time he's accrued in his pension system. Just because people make 100k doesn't mean they have any more padding than anyone else. In cities like New York, San Diego, L.A. and San Franciso (where they live) 100k is barely middle class wages!

 

[Sheryl]

If wealth is defined by how long you can survive without a paycheck then the FIRE'd are infinitely wealthy, right?

Since I consider myself pretty close now to a comfortable ER, I have to assume that I could survive indefinitely, if somewhat less comforably, if the paychecks stopped tomorrow.

Another variable in the discussion is do people change their habits when the paychecks stop or do they just keep on spendin' like they're spendin' now until it's gone? Many of us would take actions to reduce expenses, many of the soon-to-be-bankrupt probably wouldn't even sell the vacation home...

Face it: there are two types of people in the world, those that know how to manage money and those that haven't a clue.

 

[justin]

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

Another variable in the discussion is do people change their habits when the paychecks stop or do they just keep on spendin' like they're spendin' now until it's gone? Many of us would take actions to reduce expenses, many of the soon-to-be-bankrupt probably wouldn't even sell the vacation home...

I think there's a period of disbelief and entitlement when the paycheck goes away. Disbelief in that things will probably turn around, times will get better, etc. Entitlement in that one "deserves" the lifestyle they were accustomed to prior to being layed off. There's also the fact that most of these folks that spend money like it was going out of style don't know their "burn rate" - how many months their dough will last them. Once they get to the point where they are out of money, it is too late. They can't sell all their obligations (cars, seadoos, vacation house(s), boats, etc) fast enough to avoid the continuing payments and also pay off the loans.

A lot of these folks budgeting and financial planning goes like this - "gee how much money do I have right now?" "Oh, $300?" "That means I can go to the beach this weekend". Then next month it'll be "oh, I've got $500 in my pocket - that will make a nice down payment on that new car I've "needed" for a while". The only question is "what will the money I currently have allow me to buy (regardless of the monthly payments I might incur)?"

There's two kinds of people in the world - those that know how to manage money and those that don't know they don't know how to manage money.

 

[Sheryl]

Right. Those would be the people that buy cars based on how much of a monthly payment they can afford. When you ask them how many years their loan is, they don't even know.

 

[justin]

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

Right. Those would be the people that buy cars based on how much of a monthly payment they can afford. When you ask them how many years their loan is, they don't even know.

"Buying the payment" irritates me to no end for some reason! I don't know why people even negotiate the payment when they buy a car using the "buy the payment" technique. Just tell the dealer you'll pay full sticker price as long as he can figure out ANY way for your payment to be a certain amount. Then head straight to the financing counter.

 

[spideyrdpd]

I am shocked that so many people cant believe that this is true. Of course you guys knock Rk but most of these people are doodad rich and money poor. Of course Gaap may consider your stuff assets but how much money are you going to really get if you have to start liquidating ?
Even though I make a high income most of the people I know with the same job are drowning in debt. Of course they say its cause they have kids and I dont that I have mo money then them
Then there are the tech's. I really dont know how they pay the bills with the money they make.
Rob

 

[Siv]

Never ceased to amaze me when I hear people who makes +100K in debt up to their chin. I would have always thought these people are the ones with nice cars, nice house...look great top to bottom, good earning potential..what could go wrong?

Meanwhile I know people who are frugal...not necessarily know how to manage money such as investing, have pensions, etc but they have no extravagant hobbies, don't have the newest thing all the time, rarely shop and if do shop it's for food - kids. As I'm writing this, I'm thinking this is my sister's trait. 4 kids (overly fertile, I would guess) 2 boys, 2 girls (ain't it perfect??)

Life must be hectic, the oldest is only 9. She doesn't look like a superstar but in this 10 years they have managed to own 3 houses...paid off. The trade of is they only have 1 car which is 4 years old and paid off, rarely or never go on vacation as a family of 6...sometimes I look at them and thought I'm not sure I can do what she does.

People choose their destiny. Some to be rich, some to be poor. I'm sure somewhere between the lines they know what they're doing but not able to break the spell. Unless it is something such as medical situation, spend spend spend attitude is not an excuse.

 

[Scrooge]

According to Table 3 of a recent survey by the Federal Reserve Board ("Recent Changes in U.S. Family Finances: Evidence from the 2001 and 2004 Survey of Consumer Finances", available in PDF format at http://www.federalreserve.gov/pubs/oss/oss2/2004/bull0206.pdf, page 8 ), the net worth of the average ("mean", technically speaking) family in the bottom 20% of all US families was $7.5K in 2004. They define "real net worth" as "the difference between families’ gross assets and their liabilities". That's very close to living "paycheck to paycheck".

The average family between the 20% and the 40% marks was worth $34K, which may be close to living paycheck to paycheck as well depending on how quickly and efficiently you can liquidate your assets. The next 20% were worth $71K and from that point on it gets much better.

Anecdotally, sure, there are lots of high income people who have little to no savings. I have worked with quite a few of them myself.

 

[laurence]

Don't they count cars, lawn mowers, your Franklin Mint collection of genuine imitation arrowheads with Elvis painted on them etc. as "net assets"? If so the bottom 40% definitely look paycheck to paycheck to me.