I think the author's idea is that he is representative of the 47% of Americans that don't have even a $400 dollar emergency fund. And that "We" is the people in that 47%.
If survey is accurate, that large of a percentage of the population means that society has a problem. That does not just impact the individuals that don't follow good financial practices when they could. So it ends up being your (people that make wise financial decisions) problem to a degree.
>> that large of a percentage of the population means that society has a problem. That does not just impact the individuals that don't follow good financial practices when they could
Just because it's 47% does not mean that the majority of those 47% are not entirely responsible for their own situation. The things people are mentioning (children's college/university, weddings, houses, cars) are completely dependent on the individual's own decisions. That people actually go into debt or spend their entire life savings on a bloody wedding of all things is certainly not indicative of a problem with society.
Nobody is forced to spend beyond their means to strive to place themselves above middle class. Spending is not justified because you fit the "middle class" demographic and should thus be entitled to "middle class things". There is no endemic here, only individuals making poor choices. There's no huge secret to stashing away some money. It's really not difficult. I can sympathize for someone making less than $50k/year who genuinely struggles with basics. The $50k/year earner who buys a new iPhone every year? Not so much. Someone making $150k/year who is unable to withdraw $2000 from their chequing account? Not a single ounce of sympathy for them. Unless one is in a truly sticky spot like having to pay ungodly amounts of money to manage a severe illness, there is no excuse other than an introspective look at one's priorities.
Society cannot be used as a scapegoat here. The system is not flawed. The way people try to position themselves at a higher level within the system than they can afford? There's the issue.
This would have been a pretty interesting story if he'd explained his decisions in detail (other options considered, what specifically he thought would happen, how much research he did then, etc) and taken responsibility for the option he chose.
As written, when he finally gets to his own story, the negative outcomes all seem to be described as inevitable or circumstance. The alternative choices are so simplistic ("I knew how easily my girls could be marginalized in a society where nearly all the rewards go to a small, well-educated elite," "and cutting corners to turn them out faster, I knew, would be cutting off my career") that I think his argument would have been stronger with no explanations at all.
His thought process was probably "I had X, so my family will have X", without realizing how X has become less affordable over the years due to stagnant wages and rising costs. X can represent:
* Children going to a college of their choice
* A catered formal wedding
* Owning a home
* Choosing a career based on interests rather then financial stability
* Having a telecom connection (cable, internet, cell phone)
* an expensive private college
* fancy catered wedding
* owning a larger home
* doing a white collar flex hours fun career
* having lots of telecom options that didn't even exist before.
It's true, they could have gone to public school and had a afterschool tutor. It'd have been cheaper than private school by far, and gotten the same educational benefit without the 'rubbing shoulders with the elite' you get from private schooling.
As someone who went to private school, I can say certainly it doesn't count until you go to university. It may count somewhat in highschool, but primary/grammar school isn't quite the place to make connections that people make it out to be.
The author repeatedly expresses regret at having made poor financial decisions using the savings or debt as a metric. But it seems to me he has done quite well in fact: his daughters went to private schools, elite universities, had a nice wedding. What family, poor or well off, wouldn't sacrifice as much for their kids? Then he managed to stay true to his calling of a writer without compromising or cutting corners (this is a big one!). Look at the many quintessential immigrant families who used to be doctors or lawyers in their native countries who take up menial jobs to scrape by and still do a lot worse than the author. Or others who swallow their pride and go into more well-paid professions that they don't necessarily have passion for.
I'm probably lowering the standard of living target reasoning like this, which is not fair to the article which focuses on what middle class should be like, or was in the post-war boom decades. But still it could be a lot worse.
The problem is that everything is done without a safety net of an emergency fund, retirement funds, etc. as a fallback. For some reason (keeping up with the Jones'?), many Americans have the idea they must spend so much on lifestyle (transport, bigger house, services, weddings, kids) that they never have much to save in retirement, emergency savings, or other investments.
Not to mention there's this air of invincibility where someone ignores retirement/emergency savings because "If something happens, it happens and I'll just fail/declare bankruptcy/die". It would be very pessimistic except what that thinking really means is "I don't think it will happen to me at all."
As he says in the article, he's not so concerned about "keeping up with the Joneses", but he's concerned about his kids keeping up with the Joneses' kids. With rising inequality, it's hard to fault him for that.
I'd argue most of the Joneses he's trying to keep up with aren't doing that well themselves.
The median household income in the US is ~$55K/yr. Most Americans don't send their kids to private schools or pay for expensive weddings.
He's not trying to keep up with the average American, he's trying to keep up with the upper-class. And guess what? There will always be someone richer than you.
It seems "Keeping up with the Jones'" would have a domino effect, where Albert Jonesy is going broke to keep up with Brian Joneston, who is spending everything to keep up with Christina Jones, and so on. So everyone's broke, embarrassed, and behind, but still "better off" than the seemingly humble [n-1] Jones' next door.
His specific complaints seem pretty reasonable to me:
We haven’t taken a vacation in 10 years. [...] We have no retirement savings, [...] We eat out maybe once every two or three months. Though I was a film critic for many years, I seldom go to the movies now.
They're not destitute, but shouldn't most people expect to get at least some of those things more often than that?
The lack of retirement savings seems particularly bad, as the author notes they used their parents' savings to pay for their children's educations. Their children won't be able to do the same.
And as another commenter has noted, it's not just a "woe is me" sob story, the idea is that the author is representative of a secret 47%(!) who are ashamed to admit how badly they're doing. The comparison with impotence seems apt.
Is private schooling for children worth losing out on the opportunity to eat out as a family of 4 at a good restaurant every week (that's 250 per meal, so $1000 a month)?
Is funding your daughter's wedding (2000-10,000), worth skipping a vacation?
I think being middle-class is all about making choices between giving up luxuries of the body (e.g. resturant food), for luxuries of opportunity (e.g. schooling). If you are rich, you can have both your yatcht and private school. You can go to the country club, and keep a maid at the same time.
Being poor on the other hand is about making choices between necessities like "should we have water or power this week? pick one" or "should our food be nutritious or should we clean our clothes? pick one".
(that's 250 per meal, so $1000 a month) ... your daughter's wedding (2000-10,000)
Those numbers struck me as very strange. I've rarely eaten at places that are $62.5/head. But spending just $2000 on a wedding seems low. $10,000 isn't unheard of in the circles I travel in.
$250 per meal is certainly towards the higher end in most places, but my family of 3 does that, in total, almost every weekend. Figure $100 for dinner Friday night. Another $30 for breakfast Sat morning. Add in $50-$70 for lunch Sat and Sun and there you are.
We rarely eat out during the week, and we don't usually eat dinner out both Fri AND Sat nights, but the above is fairly typical for us. I don't think it is too atypical for our peers either.
What planet are you living on where a wedding only costs $2,000, and no more than $10,000? In the US, the average wedding cost is $30,000 (http://money.cnn.com/2015/03/12/pf/planning-for-wedding-cost...) now. That being said I personally think that's ridiculous and I'll do my damnedest to try to keep mine under $5k, but I know it won't be easy, and there will have to be many things sacrificed.
If they're even wanting to have a modest wedding with 80-ish guests nowadays, I can't imagine paying less than $15k (which is why I'm going to try to make it less than 20 people for mine. Hell, I'd be happy with 2).
That being said, I wouldn't want to eat out at a $50/person restaurant with a family of four once every week. You could take them to a bbq or pita or chinese restaurant and they'd eat well for under $15 per person.
I don't really disagree with your main point, just your numbers seem to be bad estimates to me.
> What planet are you living on where a wedding only costs $2,000, and no more than $10,000? In the US, the average wedding cost is $30,000
The idea of spending $30,000 on a wedding seems insane to me, and it reminds me of the Dave Ramsey quote “If you will live like no one else, later you can live like no one else."
> That being said I personally think that's ridiculous and I'll do my damnedest to try to keep mine under $5k, but I know it won't be easy, and there will have to be many things sacrificed.
My wedding (2 years ago, in the midwest) had about 100 guests and cost us about $5000 total (doesn't include the rehearsal dinner or the bar tab, which our parents covered). There were probably some things that we could have spent even less on, but it would have required us doing more things ourselves. A few things we did that might be different than the norm:
* My wife, mother, and grandmother made many of the decorations themselves
* The reception venue was less expensive because we had the wedding in April, because it wasn't during "wedding season"
* We had the grocery store make our cake for us
* We didn't pay anything for the ceremony location (there are many beautiful public venues that you can book for free)
* My wife chose a dress that was beautiful, but wasn't obscenely expensive. She also recovered about half of the cost by selling it afterwards.
> If they're even wanting to have a modest wedding with 80-ish guests nowadays,
It's kind of funny. I've been to six weddings in the past five years and none of them had over 50 people.
I guess some people just have more friends and family or are under some kind of custom wherein they invite 2nd or 3rd cousins or minor acquaintances to their weddings.
My best friend's wedding was 40 people, total cost to the bride and groom $1000. Location: a beautiful beachhouse owned by his aunt. Food and the such done by the family, and everyone who flew in stayed in houses of relatives. Photography done by my wife, music by his brother.
Save money on your wedding, spent it on your honeymoon.
> I wouldn't want to eat out at a $50/person restaurant with a family of four once every week.
I like exotic food with ingredients and cooking conditions I can't replicate at home, so $50 a plate it is.
> I don't really disagree with your main point, just your numbers seem to be bad estimates to me.
Right :)
That's really the issue at heart. Everyone makes choices that X is worthwhile, and Y isn't worthwhile. Some people choose no luxury at all, save all their money and cash out at 35 to retire.
What planet are you living on where a wedding only costs $2,000, and no more than $10,000?
Oh, come on! When a friend decided to get married, he and his fiancee went downtown and got married by a judge. Just the two of them. They fed each other french fries at the nearby McDonald's. They're still married 30 years later.
And, partially as a result of that frugality, they recently had the enviable problem of how to invest $1,000,000 cash, when they sold their big house after their kids grew up. They're currently living in a simple 3 bedroom, 2 bath tract house because they don't need more.
Another friend also got married downtown by a judge. I was there as best man, there was also a maid of honor. That totals 4 people. That was 1990. They're still married.
I think being middle-class is all about making choices between giving up luxuries of the body (e.g. resturant food), for luxuries of opportunity (e.g. schooling).
Maybe so, but that definitely didn't used to be the case, which is pretty much the thrust of the article. Its other point is that the scale of the problem is hidden because people are ashamed to talk about it.
Why do you think that it didn't used to be the case that people had to make choices about what luxuries they wanted to buy? I think that people have always had to make these kinds of choices.
I'm thinking of the middle class of my own parents' generation. They did not have to worry too much about choosing between restaurant food and schooling.
There are always going to be luxuries that you can't afford to indulge in regularly. That's what a luxury is!
Colleges and restaurants didn't used to be luxuries. I didn't fully appreciate that they now are, so this article is eye-opening for me in that respect.
(I'm from the UK where the college setup is different from the US, but it's moving in the same direction, a decade or two behind the curve.)
I don't know about the UK, but 30 years ago in the US 20% of the population graduated from a 4 year college. Now it's 30%. Access to higher education is becoming easier not harder.
Similarly, more people are eating out in restaurants more of the time.[1]
I think you have a rosy view of the past that isn't supported by evidence.
The big question is how well the middle class is doing today. They did pretty well in the past and the expectation was that things would continue getting better.
(Edit to clarify:) I figured that things are actually still pretty good for many people, but this article's claimed "47% of people can't easily find $400 in an emergency" seems to fly in the face of that.
I'm not sure about college since its different in every locale, but as for resturants I think its more that the menu and clientelle changes which pushes up the price.
In my neighborhood, some restaurants are $20 a meal. These places have been in business for over 15 years, and serve decent quality food but only staple ingredients with spices.
The newer resturants that have openned serve fresh imports from another hemisphere away, and start at $50 a plate.
So there's a choice at least here---you can get $10 sushi with tilapia, or you can go get $35 sushi with blowtorch cooked kobi beef.
As I've gotten older, I trend more towards the Kobi beef place myself... and I think that's how it is with most of the middle class. Cheaper choices do exist, but we consider them 'below our standards for a night out' especially considering that age+experience leads to better home cooking.
I'm not sure where he might have sent his kids for K - 8. In any event, people generally move out to Long Island suburbs for great schools. He could have just as well made the sacrifice of using that money for private schools instead on a house in a district that met his standards of schooling, which would have had a much lower NPV via a 30 year fixed mortgage than paying for private school annually. Plus, his house would likely have risen more in value.
It sounds to me like the author might just be a tad more financially illiterate than he should be given his lifestyle.
At the end of the day, you lie in the bed that you make. The trappings of prosperity are expensive, so you need to weigh the cost/benefit carefully.
My colleagues tease me about my 15 year old car with nearly 300k miles. My peers at work mostly lease BMWs and SUVs. But cars are an expense with a payout worth little to me. (If I was a hotshot salesdude, that trapping of success would have a high value.)
You can't have it all. If you try to do so, you're going to sacrifice something -- and in most cases you sacrifice your future.
I find modern cars are very expensive to fix and I have no interest in learning how to do it myself. I bought a car over a few years with the intention that when it is paid for I would enjoy a few more years for free. But the maintenance costs went up and it would breakdown. Frequently simple repairs would be $1-$2k because of the cost of labour to get to the broken parts and replace them. Maybe I was unlucky but I prefer to lease a modest vehicle so I'm always driving a newish one and I don't have to worry about breaking down or expensive repairs.
Quit buying BMWs (or whatever). Our Scion xB, basically a Toyota Echo and long since paid off, after 80K miles needs gas and the occasional oil change. Seeing as how it's a Toyota, I don't expect that to change in the next 50-100K miles. Might have to throw a clutch in it at some point, it is hilly around Seattle.
Not that I'm blindly hating on BMWs. Love their cars, and I have two of their motorcycles in the garage (one for me, one for the wife). I'll say upfront that my R1200GS is probably the finest motorcycle I've ever owned. But cheap to run it ain't (for example, it apparently needs a $100 set of rear brake pads every 5K miles; no, I didn't drop a zero). If I wanted cheap-to-run, I'd have bought another Honda. "Luxury brand" means it will continue to be a luxury to own even after the initial price is paid off.
It was no BMW, just a Dodge. If I do buy a car again I'll definitely do more research on reliability repair and service costs. Or buy a $1000 car and consider it disposable.
A little late on the reply, but then again, so were you. :-) Disappointing that it was a Dodge. Back in the original Dart days, at least one comedian commented, "in the event of nuclear war, two things will be left: cockroaches and Dodge Darts", nodding to their near-indestructability. (Though rust appeared to be their Kryptonite.)
If I do buy a car again I'll definitely do more research on reliability repair and service costs.
I'll save you the trouble: Toyota. Boring as hell, and with "boring" come reliability and low maintenance. I seriously worry sometimes that I'm forgetting something on our Scion (a rebadged Toyota Echo) because it so rarely requires attention. And Toyotas have been known for reliability for decades. The old SR22 engine is the stuff of legend. Assuming Hondas are as good as they were 30 years ago when I last owned one, and are as reliable as their modern motorcycles, they would probably be a good bet as well.
You have to do what makes sense. I've been really lucky with my car (Honda Pilot). I probably have about $1k in annual costs, mostly due to wear items.
My goal for cars is to average $2,000/yr in vehicle cost over its lifetime. I hit a home run with my car, but my wife's minivan will miss the mark. (Because the sliding doors break annually)
When I bought my first "luxury" vehicle (a mid level Audi), I was able to roll into the financing for about $5K more a "service" and "care" package that for the first 6 years covers of course all the usual scheduled maintenance and service, but basically "as long as you didn't break it yourself, everything will be fixed with no out of pocket".
What I don't understand is this: if he sacrificed so much for his kids, they went to private schools and elite universities, why would he have trouble asking them for $400 for an emergency? Is a good education worth nothing these days, are they making poor financial decisions too? I refuse to believe that you can send several kids to private schools/universities without being able to save some money for emergencies, or accumulate some assets/property that can be liquidated if needed.
>if he sacrificed so much for his kids, they went to private schools and elite universities, why would he have trouble asking them for $400 for an emergency?
Uhm, it's right in the article that he had to ask them to pay for heating...
On the other hand, would spending less on private schools, elite universities and so on have been worse than being in a situation where one major whoopsie leaves them living in a cardboard box?
Put your own oxygen mask on first. Aviate, navigate, communicate.
> You look at these people and they are young professionals,” Lusardi said. “You expect that people would say, ‘Of course I would come up with it.’ ” But many of them could not.
I know when I go to work I'm pretty much surrounded by millionaires. I know when I park my car there, it's surrounded by Lotuses and Teslas. What I really want to see is a venn diagram of the two, because I suspect a large portion of the latter are being mortgaged by people who don't have any real exit strategy.
I think this is a side effect of having jobs which are, relative to the rest of the country, extremely well paid, combined with very high cost of living.
In the UK if you told someone you'd be moving to the Bay Area on a starting salary of $130k you would be looked at like you were minted for life. For most tech graduates that's more than their parents' final salary and that's where you get in at! However there's a disconnect between what seems like a high salary and your spending power in somewhere like San Francisco.
Over here tech salaries are a lot lower, though still good compared to everything except finance. Anyone who lives in London will assuredly not be buying a Tesla on a Google starting salary.
People like saying "Oh he earns a six figure salary", it's a status symbol, and the natural response to earning that sort of cash after going through college and being dirt poor is to splash it a little.
I should rephrase "a" natural reaction. Plenty of people don't waste their money, but I think for a lot of others there is at least temptation to live a little with their newfound windfall.
> nearly one-quarter of households making $100,000 to $150,000 a year claim not to be able to raise $2,000 in a month.
When people say these things, I wonder if they are perhaps not thinking about taking drastic action.
For me, when I do disaster planning I think about extra-ordinary measures.
For example, when I was in my 20s if I needed 2000 in the next month I would have planned to at:
- At age 21. Break my lease and move in with my parents. The lease was month-to-month, and would have instantly put an extra $1000 per month in my pocket + food savings.
- At age 25. Break my lease taking a $6000 hit, but that'd be paid in installments over the next 12 months whilst I could certianly find a place that's worth less than $3,000 per month in rent.
- At age 29. AirBnB my house or co-let. It's a good area, I'd be surprised if I couldn't scrounge up $2000 that way fairly fast.
That's just an example of focusing on housing.
Another thing to do in desperate need would be to cut digital communications and sell equipment. Do you have an iPad or Macbook? Can you sell one and use the other? How about a smartphone. Sell it (300+ dollars back) and switch to cheapeer services (maybe around 50-80 back).
----
Tl;Dr.
People with $100,000 a year income have assets that they can sell or lease to cover a $2000 transaction, but they answer the question as if thinking "if I change nothing at all, can I come up with $2000".
The point is to be able to come up with $2,000 without taking drastic action. The $400 example in the article was being able to come up with $400 without selling stuff or taking out a payday loan.
I could sell my house and come up with tons of money. That doesn't count. I can also just pay an unexpected $2,000 expense (like my $3,000 unexpected tax bill) out of savings.
The point is that a lot of Americans don't have liquid assets they can use in the case of a minor emergency.
They don't have cash. They do have liquid assets. Anyone who owns a car has a liquid asset... they just don't think of it as such because they "need" it.
How fast do you think I can get a fair price for my 97 Sable? Fast enough to cover an "emergency" expense?
Cars aren't very liquid. You can sell them to a huckster with a lot in the shady part of town for 1/3 of what you could get by putting an ad on Craigslist and waiting a few weeks. If you don't have a few weeks, this is a problem.
Did he really have to pay for his daughter's wedding? It's like 4000 words about how poor he is then somehow he finds many thousands for a totally unnecessary expense
Hah, if only my parents or wifes parents had paid for our wedding. That would have been pure luxury. We saved for three years to pay for our wedding. We were very frugal and it was beautiful. Paid for the entire thing without a cent of debt. It's certainly doable.
I think the article can be summed up by this sentence:
> We have no retirement savings, because we emptied a small 401(k) to pay for our younger daughter’s wedding.
The author isn't mysteriously broke. Money is not being stolen from his account. Rather, he's spending a lot of money on things which he believes are necessities (like paying for a child's wedding), and sacrificing a lot of things which he believes is optional (like having retirement savings). Some would suggest both categorizations are wrong.
Also:
> we believed [our children] had earned the right to attend good universities
That's actually not how university tuition works, and the rhetorical tricks being deployed here leave me cold. Your daughters did not have the right to attend those expensive private universities; they had the privilege of doing so, because you spent a lot of money you didn't really have to obtain that privilege for them. Which is awesome for them! No doubt it will benefit them (which is why you paid all that money, I imagine). But it's not entirely clear to me how "middle class" paying for your children to go to some of the most expensive schools in the world really is?
>> We have no retirement savings, because we emptied a small 401(k) to pay for our younger daughter’s wedding.
> The author isn't mysteriously broke. Money is not being stolen from his account. Rather, he's spending a lot of money on things which he believes are necessities (like paying for a child's wedding), and sacrificing a lot of things which he believes is optional (like having retirement savings). Some would suggest both categorizations are wrong.
Bingo.
As much as I think of social security as a ponzi scheme, one thing I do like about it is that it forces people to contribute and they can't touch their contributions. Sure you might only get $.60 back for every dollar you throw in there but hey at least you'll get something.
It's sad to say it, but the majority of people are not financially savvy enough to make sound decisions. Left to their own devices most people wouldn't save diddly squat, work till they're fired, then be destitute. And they probably won't have kids to take care of them anymore either because "Kids are expensive ... you can't afford that!".
The average person sees maybe 600 ads a day asking them to buy something, and maybe 2 ads telling them to save more (using overpriced financial advisor X).
Not saying people have no responsibility, but the odds are kind of stacked against you - it is an uphill battle to survive.
But the Ponzi scheme aspect of SS is (mostly) orthogonal to its "forced savings" aspect. If the revenues from its taxes had been invested like a sovereign wealth fund, even very conservatively, it would be in much better shape.
Instead, it was "invested" in government bonds, which is equivalent to saying, "oh, I'll just raise the money later". But that's courting disaster: if you have these unfunded obligations that come due, you have to gore an increasingly difficult amount of taxes out of your base, which can become rapidly impossible if and when people start fleeing from the burden.
We could have kept the forced savings but given people back more than a real dollar per dollar forced to contribute.
I think part of the problem with those 47% is that they can't distinguish the two cases. Middle class people aspire for their children to be upper middle class, and the traditional routes to such jobs (excluding the software world), require an expensive education. They do not require an expensive house, or expensive car, or expensive wedding.
The article strikes a chord with me, because the author exhibits some of the same thinking as my own parents. They paid for my brother and I to go to college, for which we are very grateful. But they also say that the giant house in an expensive zip code, the foreign cars, etc, are "for us" using some nebulous baby boomer thinking like "if you want to be somebody, you have to look like somebody."
Far be it for me to judge my parents' choices. But recently, my dad quit his job and started a business. At that time, he definitely wished he had built up more of a runway.
They do require an extensive house. Am expensive house gets you into a top public school that feeds into a top college, and makes you neighbors and friends with rich people who can get you a good job or a wealthy spouse.
This is a real thing. I like to call our current house "our parental overreaction".
Even here, though, there's an easy trade-off. Expensive house in good public school catchment, or cheap house + private school. But, don't do both if you're stretched.
No public schools "feed into a top college." I went to a public HS regularly ranked #1 in the country, and students went to exactly the colleges you'd expect based on their SAT/GPA.
Ivy League school admission offices literally have lists of preferred schools to recruit at, and give more respect to GPAs at those schools, and many of those schools are public schools. I attended one.
Yep, and we can't decouple real estate from school access [1], because most people's wealth is tied up in their house and would lose significant value if it weren't required to send your kids to the good schools. Oops.
[1] e.g. like much of Europe, let you go where you're accepted, regardless of where you live, and let the public funds follow you
>No doubt it will benefit them (which is why you paid all that money, I imagine).
The nightmare many are facing is that it doesn't benefit them. Regardless of what self improvement one may receive from their degree, certain degrees are being awarded at a faster rate than the economy demands them, depressing wages for those who can use that degree to get a job and resulting in many who can't use that degree to get a job.
There is no doubt that they have spent money foolishly, but bear in mind you are talking about them spending on a wedding and college. These are not trips to Vegas with hookers and blow, but rather core human experiences, closely tied to the concept of "middle class" themselves, and not financial back-breakers for middle class families in the past.
So, yes, there is some blame to be apportioned for the spending habits. However, there is also the systemic problem of real incomes declining significantly, with major life costs (housing, education, medical, taxation) increasing dramatically:
Either way, the decline in real wages in the face of rising major life costs is a major contributor to the increasingly precarious position of many middle class families.
> These are not trips to Vegas with hookers and blow, but rather core human experiences, closely tied to the concept of "middle class" themselves, and not financial back-breakers for middle class families in the past.
I have more respect for someone who blows all their money on "hookers and blow" (or whatever their personal equivalent is) than keeping up with the Jones. If you're gonna flush your wad of cash down the toilet, pick your own stall!
You don't need to have an expensive wedding, worthy of emptying a retirement savings account. You can still have a wedding, just don't spend 40 years of savings on it.
And you can still go to college, but go to a state college and live at home. The con these private universities are pulling on the middle class is something for the history books. They sell this "university lifestyle" to impressionable, naive high schoolers who then throw themselves (or parents) into stupid amounts of debt just to live the lifestyle.
Mostly agree. But someone who turns down Stanford for State U is throwing away a golden ticket. The opportunities at state school just are not comparable.
Stanford has some fantastic opportunities, sure. But those opportunities come with significant opportunity costs (at the very least, financially). For some, it is better to attend a state school; the mental calculus involved in making this decision is rather difficult for an 18 year old and his/her family, especially with all of the noise that surrounds the college admissions process.
The relevant question isn't whether Stanford admits will do better at Stanford or elsewhere. They will be fine regardless. The question is whether Stanford non-admits should try to buy their way to prestige by attending American over UVa or UMd.
Understood. I think one of the problems is that (fill in the blank: society, parents, students, guidance/admissions counselors, et al) seek to categorize and create blanket answers, whereas the correct answer is highly variable relative to the application. Boolean vs bayesian.
As a mental exercise, I'm imagining a product that would, given a number of inputs, produce a bayesian curve of the applicant's possible outcomes, and then selects the best school for that applicant. While developing this product sounds like a fun side project, I can't imagine it gaining traction, because the aforementioned groups would get upset (read: not pay) that Prestigious U is not the best choice for Johnny, rather, Mid-Atlantic Middle College is. It would be difficult to get the secondary actors in the process to pay as well, because there is value generated for them by maintaining process homeostasis.
Current thinking would suggest that I should have gone to, say, Bucknell over Penn State (again, I understand n=1 here, and I am not measuring my level of selective perception), whereas I am very happy with the course of events and think it produced the best outcome. I have to believe there is some grain of truth to my line of thinking and a potential for value generation in the decision aspect of college admissions.
The answer to the second question is pretty obviously no. There are maybe 20 private schools in the US which are genuinely worth the price over public schools. They're not just offering a comparable to better education. They're offering the children of the middle class an entree into the upper class. (Relatedly, the con which the 2nd tier private schools are running is selling parents the idea that just paying a lot for an education is a ticket up.)
All of which seemed relevant to me since the author of TFA was making sacrifices to send his girls to Emory & Stanford.
You are getting downvoted, but you are correct. Maybe a few state schools compare (UM, UM, Berkeley...) but even so, getting a market-relevant degree from Stanford is not a bad investment. You will so fine. Then again, if you live in California, Berkeley is great.
But when people talk about wastefully expensive private schools, they really mean schools that have nothing over state schools but the price tag: GWU, George Mason, American, and the like. Combine that with a non-reliably-marketable degree like Psychology, Political Science, Communications, or Art History, and the result is disaster.
About 4% of 18-24 year olds in the US went to private 4 year colleges in 1973, and 8% in 2012. So private higher education has become more accessible (with good and bad effects) but is still a privilege of the well off, not a core human experience.
This doesn't contradict your point that real incomes are declining.
The pretty huge increase in tuition at public colleges is the problem.
For one thing, top state universities are better schools than the majority of private colleges. They have research programs and a much wider course selection.
However, you didn't explain why. There are, IMO, two reasons:
- maintaining demand by incessant, aspirational media pressure e.g. if you don't have a Cinderella-like wedding costing $100K+, you are a failure (it is the most important day of your life, right? right?)
- easy availability of credit to finance these wants (not needs)
A lot of people believe that a $100K wedding must be better than a $10K one, or a $75K/year college must be better than a state university.
I'd exclude taxes and health care, though. These are a bit different, because you don't really have much of a choice here.
None of that excuses poor financial decisions. Raiding your 401k for frivolous (yes I'm calling a wedding that) expenses is against any personal finance 101. I'm willing to bet that the author's financial illiteracy did not start at whatever age they happen to be and that they likely have made a series of poor financial choices throughout their life. Financing your kid's college when you have no savings will have a crippling effect on you as well as your kids when they have to not only pay back the money you borrowed but also pay for your retirement because you didn't save any money.
When did it become normal for parents to pay for college? I always thought that was something you do as basically a huge gift. I came out with a bit over $100k but I chose that school knowing full well it would mean 10 years of higher payments and it was worth every penny in my opinion (I got so much out of college - I feel like the only person who came out with a huge loan that's happy with it). My parents paid the interest on my loans all through college and made the first couple payments while I transitioned into the real world -- I am eternally grateful they did even that for me.
I see it more and more that parents are expected to pay for their children to go to school - which also means that a big part of my loans are probably because of my father's income being counted when I did the FASFA. If the non-dischargability of the loans is based on a lack of finanical history (which I know I'm in the minority but I do feel that's fair), then the applications for financial assistance really shouldn't take it into account unless your parents are actually paying for your school.
Your are doing the same thing the writer does -- claiming that expensive luxuries, enjoyed only by the richest top 10% of Americans and top 1% of world citizens -- are core lfe essentials.
> There is no doubt that they have spent money foolishly, but bear in mind you are talking about them spending on a wedding and college
My value-system doesn't lump wedding and college together. It seems much more reasonable for parents to sacrifice their own well-being to send their kids to elite schools. The whole wedding thing seems crazy to me, though.
Considering how bad financial distress is for a marriage, it seems like a really terrible idea to stretch yourself for a wedding. There should be (not saying there isn't) no shame in getting married at City Hall, with a few of your closest friends and family. Could be the best marital decision you make, if it puts you on a better financial trajectory.
Why is it any better idea to stretch yourself to go to an "elite" college? The only way that the authors children "earned" the right to go there is if they were awarded a full scholarship.
I went to an unknown stare college, stated at home and got a degree in computer science. After my first three years of working - almost 20 years ago - my salary has been comparable to anyone else's. No one cares what college I graduated from.
Depending on the industry, college choice matters from when you graduate and very long into the future. I'd argue it might be worth parents going into debt for certain colleges but then I'd also argue that if a kid was smart enough to get into their pick of colleges, they probably should have a load of academic scholarships anyway.
"not financial back-breakers for middle class families in the past."
I doubt that middle class families in the past routinely had weddings that required the rental of dedicated space and staffing by a dozen or more paid individuals. Maybe you had it in the church and had a potluck afterwards in the basement, or maybe you had it in a large rural backyard.
Of course, before, middle-class people also did not retire for decades and expect to spend that time traveling and not working. They did not expect to drive cars with air conditioning, carry supercomputers in their pocket, watch 200 channels on TV, or live in large air-conditioned suburban homes.
So what has happened is that the perception of "middle class" lifestyle has grown to include considerably more consumption. That's ok. It's just sort of puzzling to read this piece--he seems to say "I've had a good life, I've gotten good things for my kids, I don't have money in the bank, but it's my own fault, so I'm not complaining." Which is nice, but why is that worth reading?
>>but rather core human experiences, closely tied to the concept of "middle class" themselves, and not financial back-breakers for middle class families in the past.
What constitutes 'core human experiences'? There are people in this very forum who think a vacation per year is a very valid human need because 'life happens only once'. So by many a measure 'the trip to vegas' is a 'core human experience'. Plus there is a very think line of difference between a vacation to vegas or grand canyon.
The right way to measure a 'core human experience' is to ask what is the person's highest priority? If you ask me nothing is more important to me than putting food on the table, having clothes to wear, a roof above my head and enough cash for my health expenses when I grow old. That said, now I have to plan my finances accordingly. I can't spend a good chunk on everything else and then complain I don't have enough.
People at all levels of income are faced with 'priorities', this includes millionaires as well.
But no increase in discretionary income can ever resolve worries about spending on positional goods[0], which the wedding is -- since positional goods involve spending to achieve a rank relative to others, then achieving a certain rank will be just as burdensome, regardless of how much wealth the middle class enjoys, since the highest-ranked people will blow an "uncomfortable" amount to get the high rank.
You're right about those other goods though: if people have to shell out all their discretionary income to cover some minimum baseline in those categories, then that is a solvable problem. Arguably, though, education and housing have become positional (and thus intractable via discretionary income) because people are trying to achieve a relative rank through them, not some baseline of quality.
These are not trips to Vegas with hookers and blow, but rather core human experiences
My wife and I had a Vegas wedding. Without any hookers or blow. A total of four other people at our wedding; they paid their own way there.
My wife and I used the money we saved on our wedding to help fund the purchase of a house (and all the crazy additional expenses that involves). We're still married 20 years later,
Contrast that with one gal who had a very elaborate wedding, at an expensive venue, with many guests, and who subsequently divorced within a year. What of the "core human experiences" of all the people who attended that misbegotten wedding?
Life comes down to choices. Few people are rich enough to be able to afford everything they may feel entitled to as part of the "middle class".
systemic problem of real incomes declining significantly, with major life costs (housing, education, medical, taxation) increasing dramatically
All that is very true. But it doesn't excuse foolish financial decisions about the events that people do have total control over.
the decline in real wages in the face of rising major life costs is a major contributor to the increasingly precarious position of many middle class families.
Yeah, that and the fact that many people can't grasp the simple concept of saving for a rainy day.
This is not the first woe is me article put out by destitute writers. I can't say I feel bad for his life choice to get a degree in something that everyone knows pays poorly.
In fairness, if a wedding eats up your entire retirement savings, you either had a royal wedding or had no real money for retirement. I put enough in my 401k each year to pay for a wedding.
There's a huge variance in what people consider a reasonable price for a wedding. My wife and I budgeted $10k in 2000, and felt like that was a bit higher than we wanted. This is in Toronto, Canada. I'm always a bit surprised when younger friends tell me they're paying double that when I don't consider them to be as financially secure. Especially when they're secular, and there's no constraining family culture to appease.
People like this writer are narcissists -- relatively wealthy people who squander their gifts and seize attention from the working class who never have a chance to waste money like he does.
In my friend group, our incomes vary by about a factor of 5. We all spend about the same, though. Which means those that are making more are much more comfortable, putting money away for a rainy day.
In contrast, a college friend that keeps in touch makes more than any of us, but she likes to lease new cars every three years, and she must spend money on the poshest pre-school in the area, and she is shocked to hear about people saving $2/3/5k a month. That's money that could be spent!
I don't think I have a point here. I just can't wrap my mind around people making $150k and not being able to "raise $2000" in a month's time.
> I just can't wrap my mind around people making $150k and not being able to "raise $2000" in a month's time.
A person making $150k who has no savings/retirement/etc is a someone with very serious money management problems. In every state in the US, a $150k household income places you above the "middle class."
We make much less than that and we saved nearly that much a month saving for our own wedding last year. I don't understand where the money goes with some people.
It's really easy if you purchase lots of little things using a non-cash form of payment. It's even easier if what you're buying is non-physical, like streaming movies or video games for a tablet/phone. The key is to remove the physicality on one or both ends of the transaction and keep the single transaction cost in 2-digit range or the low 3-digits. And of course, never budget, ever, and try not to mentally track how many purchases you've made over the past few weeks. Do that as a pattern, give it some time, and money will evaporate Brewster's Millions style.
Only the rare whale can make a huge debt in savings buy spending on digital goods. The real money goes out on car payments, rent payments, vacations, and eating out every day.
You could rent an HD movie every night for $20 and it'd still only swing your expenses by $600 each month. If you're making $35,000, that is absolutely huge.
If you're making $150,000 - it really should not be huge.
It's fairly easy to go through that kind of money depending on where you live. If you're living in SF or NY you could well be spending $4k-$5k on rent or a mortgage. Supporting a spouse and children is very expensive even before you consider college. Forget the $400 emergency in the article, kids, not uncommonly, need $10k of orthodontic work. I also find that busy professionals tend to eat out a lot more because they don't have time to shop and cook, which is another significant cost.
Wow... "My wife just lost her job, and I'm not sure how/if I can pay the rent this month. So yeah, I'm right in that category. Only I'm not ashamed, I'm angry."
That's not middle class, that's called living paycheque to paycheque, or hand to mouth.
Stories like these terrify me, mostly because I am very concerned about what will happen to the retirement savings of people who did the responsible thing and did save, and lived well within their means, and contributed to their 401k (or other retirement savings).
The most active voters are the older groups, and as people like the author reach their elder years with nothing to retire on, they presumably vote in their own best interest.
As it stands now, there are ~$4 trillion dollars[1] in 401k savings. It is currently not being taxed, with the assumption that it will grow during a person's working years, and be taxed when it is withdrawn, as income tax.
However, as people like the author reach a certain age, I am fairly convinced that there will be a significant tax on retirement savings from the responsible folks to pay for those who didn't save appropriately. Politically it's fairly straightforward: we have millionaires who can "afford" to help pay for the less fortunate! This ends up hurting the people who saved so that they could properly afford to send their kids to schools, to be able to go on vacations in their retirement, etc.
As much as the story has been "max out your 401k!", I'm fairly convinced that it's going to end up being a worse deal than people count on. I don't really have a solution other than to "diversify investments", but stories like this do terrify me. I plan for retirement and try to be responsible about how I live my life so that when I choose to retire, I'll be able to enjoy it and spend time with kids/grandkids or golfing/traveling/whatever.
I can almost guarantee Roth IRA holders will get screwed in the future. At least 401k holders got a tax break on the front end. Also, most middle class workers have at least something in a 401k, especially since companies are moving towards an opt-out model on 401ks. Relatively few Americans use Roth IRAs and most are "high" income types.
Politically, it will be a slam-dunk to tax the crap out of money coming out of Roth IRAs in the future.
I'm trying to imagine under what political circumstance the Roth IRA would have its basic premise completely up-ended. Between a breach-of-contract and a gaggle of irate retirees, I see no slam-dunk here at all.
Not just 401k. Saving is always a risk, because people spend themselves into poverty and claim the same benefits as people who never has income. This is why you pay a higher interest rate on loans than you get on investments -- to cover for deadbeats.
Ultimately, you have to be happy that spenders overlay for stuff, and the interest gains on savings are better than the tax hit, and day-to-day financial security makes you feel good and finances better opportunities -- like you can afford to move for a job or whatever.
Agree 100%. Great conversation tangent over on reddit's FI sub about this article, and specifically, the fear that those of us who were/are responsible will be taxed to support those who were/are not: https://www.reddit.com/r/financialindependence/comments/4fhs...
For those of you who prefer the whistling-past-the-graveyard approach, Christopher Buckley's book 'Boomsday' is hilarious.
Anyone care to share how they are protecting their savings against this increasingly likely prospect?
In addition to all the other diversification advice you can read everywhere, you need to have three pots of savings:
1) pre-tax retirement savings such as traditional 401(k) or traditional IRA
2) post-tax retirement savings such as Roth 401(k) or Roth IRA
3) normal cash and investments, outside of any sort of retirement scheme
Being diversified in that fashion will give you more flexibility to react appropriately to any changes in the tax laws.
And, if you can swing it, you also want some assets that aren't readily visible to the tax man. In decades past, that meant something like a Swiss bank account. Now, perhaps, it might mean something like gold coins.
And there are even more exotic ways to "shelter" your assets. My father, who was displaced by WWII, stressed the value of a good education in a useful field. A malevolent government could confiscate your house and your money, but it couldn't take away what was inside your head.
Yeah I have very big (somewhat "Knightian") concerns about that, per my other comment [1], in that it's very easy for us to hit a tipping point. We have massive unfunded obligations coming due, and it's it's not that easy to raise taxes, despite sanguine dismissals that "oh, just some small tweaks and it'll be fine".
But the tipping point comes when you have to take too much from present workers for past obligations, and some of them say, "wait, screw this, I'll just take my labor somewhere else", which means they have to tax a bigger incentives, which scares off more workers, and spirals out that way.
Relatedly, I have grave reservations about prodding the entire economy to have a huge nest egg in 401k-eligible investments, which can distort the voting base into favoring government interventions that favor the largest companies over smaller ones that don't get publicly listed, changing the playing field.
I think the lack of assets explains the angst shown by many Americans this election cycle much better than the employment rate. Enough people are working, they're just not making enough.
I think a lot of folks are missing a big point: The author understands that he spent more than his income:
> In retrospect, of course, my problem was simple: too little income, too many expenses. Credit enabled me to forestall this problem for a time—and also to make it progressively worse—but the root of the problem was deeper. I never figured that I wouldn’t earn enough. Few of us do. I thought I’d done most of the right things.
The article is really about grappling with having "done most of the right things", yet not being able to afford "the right things", as well as the ensuing penalty.
I think the real point the article is missing: The standard-of-living in the US relies on unsustainable spending, compared to the 1990s-2000s. A deeper article might explore why the standard-of-living was being artificially inflated (a credit bubble, with its roots in the 80s). As a bonus article, consider if society turns against debt-as-a-way-of-life (like the generation that lived through the depression) or if the securitization-of-debt market begins to falter. That would be a true horror story.
PS. I think this is one of the meatiest articles to come out on personal finances in a long time, and it's far too meaty for the full discussion it should have (it'll be gone in a day on HCN, way past the 10 minutes or so any of us will spend on it.)
EDIT: Changed the bit about standard-of-living, which distracts the point. Yes real earnings are down, yes the employment ratio is down, yes college is unaffordable. But Total sq ft per house is way up, cell phones are a tech advance, so how you measure standard-of-living turns into another big topic.
Standards-of-living may have dropped dropped (though I'm pretty skeptical) but if so the drop is pretty small. This guy's financial problems are much bigger than this drop. I think that the personal responsibility deficit we have in this country is a much bigger deal than whatever issues we have with middle income wages.
For a variety of reasons (easy access to credit, the media, who knows what else) a great many people are living above their means. And that's a big problem.
Is it? Then why does it continue? It's a problem for the debtors, but not for the people and system that encourages, enables, and profits from their bad decisions.
Standard of living is not dropping. Real wages are dropping, but technology and efficience improvements more than cover the difference. Yes, income inequality is growing, and that is a fairness problem. But no one would prefer a random spot in 1980s USA over 2010s USA, by an objective measure of overall economic wealth.
> But recent research indicates that when people get some money—a bonus, a tax refund, a small inheritance—they are, in fact, more likely to spend it than to save it.
Not recent at all. I first read about it in The Millionaire Next Door book. Referred to as the "better than" theory [1].
Plain and simple, people don't like to save when they have the option. They like immediate reward. If you make $500 more a month after a raise, many people will reward themselves for the raise, justify buying something they've wanted, etc. After a while, the mindset that they are living just fine while spending the extra money sets in and they end up never saving the extra $500.
I admire this guy for making sacrifices to educate his daughters well. (And it seems like he's succeeded...Rhodes Scholars aren't exactly common.) It looks to me, however, like he's might have failed in one important aspect.
He should have taught them from an early age about budgets and outlier expenses and the real costs of things (e.g., good school district for them, not much work for his wife). Instead, he's kept them in the dark, to the point of burning retirement savings on a wedding.
No one is born knowing how personal finance works, and learning the hard way sucks. Parents have an obligation to educate their children about this stuff. It's tragic that so frequently, after learning the hard way themselves, they hide everything from their kids, and in doing so, set the kids up for the same set of hard knocks.
The real problem with debt is not the interest. It's that it keeps you comfortable when you shouldn't be, so you don't make lifestyle adjustments when you should.
These lifestyle adjustments aren't easy, and the way to be good at them is the same as for anything else: practice.
But people don't practice when they are young because they have easy credit. By the time the problems can't be brushed away any more (even with borrowing), they have children, making the decision that much harder. And without practice, they don't even know how to downsize.
There are so many perfectly reasonable things people can do to save money that aren't even considered. What about moving into a small apartment, eating beans and rice, and riding the bus for a few years while you get back on your feet? Sounds bad to a lot of "middle class" people, but I bet it's more pleasant than a downward spiral. And if you do it soon enough, you can get back to a good place quickly.
And I don't buy in to the "whatever college you want" guilt. I'll tell my children they have a guarantee of state school (assuming they get in), or education I Germany (where it's free). Anything else they need to get creative or lucky.
If my kids are smart and they do good work, why would I want to limit their college opportunities by forcing them to go to a state school? In my state there is one really good state institution (University of Maryland, College Park), and that's how it is for many states (or there are zero good state schools). And if my kids want to do research or study engineering or computer science, it's a very good school for that, but almost every school has weaker areas (and some have none they are particularly good at).
On a micro level, sure you can say maybe send your kids to cheap schools. On a macro level, college costs are getting way out of hand. Private schools should be able to serve more than the 1 percent and the really poor on full rides.
I graduated 10 years ago from an elite private university. It was expensive then, but it's a complete bargain today. Prices are raising much faster than inflation. I'm trying to save a few hundred thousand for each kid for college, but in 16-18 years, that won't go that far.
I'm only going to pay to send my kids to a private school if its a really good one, but I'm not going to tell them there is a whole class of schools they can't go to just because I'm cheap.
I live in California, so state schools are very good and can even be prestigious (Berkeley, UCLA).
I'm not limiting their options. I guess if one of my children is absolutely determined to jump into big time debt to go to Harvard, I probably wouldn't stop them.
But I won't destroy myself financially just because I'm afraid to explain to my children that choices have costs (list price of Harvard is something like $80k/yr). Also, my children are more different in age, so if I go broke on the first one, the next one wouldnt have the same opportunity.
The choice I'm offering is really not a bad one. I'll pay something reasonable, and if they can make up the difference with work and scholarships, great. If they want to do research, they can always go to MIT for grad school.
Also, by the time they go, things might be different. So many people got burned by the "go to whatever college you want, regardless of price" idea that it might shatter the prestige of any private school below ivy league. Or more people might do the first two years at CC before going to university, and that might carry less stigma.
It seems that Americans have a serious issue with debt. I'm Italian and I live in France... and there are only 2 things I would get in debt for: a car (only if strictly necessarily) and a house. Nothing else.
If you do not have the money for something just wait till you have saved enough to buy it without getting in "financial peril".
My golden rule is to always spend as if you had only a third of the money you actually have... and thx to it now (just got 30) I could live with my savings for at least 2 years without working at all maintaining the same lifestyle.
An emergency of 2000$ (or euros) is really no big deal.
Good lord, I expected more from HN commenters. Yall are talking about how he is a bad spender and should have done better with his money. Did any of you read this all the way through? I'll excerpt what the author literally says is his point of the article.
"I don’t ask for or expect any sympathy. I am responsible for my quagmire—no one else. I didn’t get gulled into overextending myself by unscrupulous credit merchants. Basically, I screwed up, royally. I lived beyond my means, primarily because my means kept dwindling. I didn’t take the actions I should have taken, like selling my house and downsizing, though selling might not have covered what I owed on my mortgage. And let me be clear that I am not crying over my plight. I have it a lot better than many, probably most, Americans—which is my point. Maybe we all screwed up. Maybe the 47 percent of American adults who would have trouble with a $400 emergency should have done things differently and more rationally. Maybe we all lived more grandly than we should have. But I doubt that brushstroke should be applied so broadly. Many middle-class wage earners are victims of the economy, and, perhaps, of that great, glowing, irresistible American promise that has been drummed into our heads since birth: Just work hard and you can have it all." (emphasis added)
The point is that though the author screwed the pooch on his finances, he assumes that he is a lot better off that most Americans. If true, that should be shocking to us all.
Other commenters point out that those that did save will have to rescue those that have not and that is a BS thing to have to do. I think that is probable, though not certain. However, like this student loan time-bomb, I think that forgiveness is the best path. Yes, we can lord over those that were dumb and did what others told them to do without really thinking. But I would rather have happier and less-stress neighbors and fellow citizens with the forgiveness even knowing that they will do it again and thinking to themselves that they cheated the system and won. We can be 'right' but have to sit in the mud, or we can forgive and all be happier and wiser for the next round.
My own practice in recent years has been to analyze trends and convert them into investments. So for instance, I have substantial positions in McDonalds, Altria, Philip-Morris, Exxon Mobile, Facebook, and Service Corp (none of which do I patronize). People be gorging, smoking, posting online, and dying. To invest in rampant financial ignorance, I looked into pawn shops and payday loans, but those are all privately held (e.g. super-lucrative, don't need outside capital). I'm looking into banks, Visa and MasterCard, and other facilitators of credit and payments, as possible growth areas.
People's spending habits are so broken, I think there must be some equivalent adult financial schooling/courses to give people right training on the most important in their life.
I frequently run in to relatives and bosses and other senior people who complain of not having money or expressing surprise when they learn some one earning far less or doing a job that they think is beneath them makes/has made a good investment. Finally they tend ultimately complain of life being unfair to them. Forgetting the fact that they make 5-6 times more and their state is their own doing.
Yet more I look at their lives, I see a spending pattern that co relates to borderline nonsense. They take vacations because some one else is, and not taking one frequently means losing brag rights in social circles. They have cars they don't need, they buy expensive cameras and lenses they are likely to never use or even know how to. They buy clothes which they are going to not like a month later. They change gadgets every year. They seem to spend money on everything which they don't need, or use or even remotely derive any value from.
Its simply a never ending cycle of upgrades and added finances time after time, which isn't unsustainable.
Even some very intelligent people I know are very poor in understanding large timescales, how investments work, how their own spending can be destructive to them.
At the very same I see people making far less, but a home early in life, start contributing to that retirement fund early and come out on top.
Honestly in the free market economy, freedom seems like something most people are incapable of handling. People have themselves to blame.
People (even those who reject Marxism) ought to recognize the fact that money is the crystallization of labor, nothing more, nothing less. It gets more complicated and abstract from there onward, but if one starts each financial interaction with that "swing thought" then perhaps one will make better decisions. I know I do.
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[ 3.2 ms ] story [ 231 ms ] threadUh, hello? The paragraph consists entirely of "I" statements about the bad choices he made and concludes with a "We".
There's no "we" about it -- I made (make) choices to improve my financial wellbeing. If you don't, that's your problem.
If survey is accurate, that large of a percentage of the population means that society has a problem. That does not just impact the individuals that don't follow good financial practices when they could. So it ends up being your (people that make wise financial decisions) problem to a degree.
Just because it's 47% does not mean that the majority of those 47% are not entirely responsible for their own situation. The things people are mentioning (children's college/university, weddings, houses, cars) are completely dependent on the individual's own decisions. That people actually go into debt or spend their entire life savings on a bloody wedding of all things is certainly not indicative of a problem with society.
Nobody is forced to spend beyond their means to strive to place themselves above middle class. Spending is not justified because you fit the "middle class" demographic and should thus be entitled to "middle class things". There is no endemic here, only individuals making poor choices. There's no huge secret to stashing away some money. It's really not difficult. I can sympathize for someone making less than $50k/year who genuinely struggles with basics. The $50k/year earner who buys a new iPhone every year? Not so much. Someone making $150k/year who is unable to withdraw $2000 from their chequing account? Not a single ounce of sympathy for them. Unless one is in a truly sticky spot like having to pay ungodly amounts of money to manage a severe illness, there is no excuse other than an introspective look at one's priorities.
Society cannot be used as a scapegoat here. The system is not flawed. The way people try to position themselves at a higher level within the system than they can afford? There's the issue.
As written, when he finally gets to his own story, the negative outcomes all seem to be described as inevitable or circumstance. The alternative choices are so simplistic ("I knew how easily my girls could be marginalized in a society where nearly all the rewards go to a small, well-educated elite," "and cutting corners to turn them out faster, I knew, would be cutting off my career") that I think his argument would have been stronger with no explanations at all.
* Children going to a college of their choice
* A catered formal wedding
* Owning a home
* Choosing a career based on interests rather then financial stability
* Having a telecom connection (cable, internet, cell phone)
etc, etc...
* an expensive private college * fancy catered wedding * owning a larger home * doing a white collar flex hours fun career * having lots of telecom options that didn't even exist before.
As someone who went to private school, I can say certainly it doesn't count until you go to university. It may count somewhat in highschool, but primary/grammar school isn't quite the place to make connections that people make it out to be.
I'm probably lowering the standard of living target reasoning like this, which is not fair to the article which focuses on what middle class should be like, or was in the post-war boom decades. But still it could be a lot worse.
The median household income in the US is ~$55K/yr. Most Americans don't send their kids to private schools or pay for expensive weddings.
He's not trying to keep up with the average American, he's trying to keep up with the upper-class. And guess what? There will always be someone richer than you.
We haven’t taken a vacation in 10 years. [...] We have no retirement savings, [...] We eat out maybe once every two or three months. Though I was a film critic for many years, I seldom go to the movies now.
They're not destitute, but shouldn't most people expect to get at least some of those things more often than that?
The lack of retirement savings seems particularly bad, as the author notes they used their parents' savings to pay for their children's educations. Their children won't be able to do the same.
And as another commenter has noted, it's not just a "woe is me" sob story, the idea is that the author is representative of a secret 47%(!) who are ashamed to admit how badly they're doing. The comparison with impotence seems apt.
[Edit: spelling]
Is private schooling for children worth losing out on the opportunity to eat out as a family of 4 at a good restaurant every week (that's 250 per meal, so $1000 a month)?
Is funding your daughter's wedding (2000-10,000), worth skipping a vacation?
I think being middle-class is all about making choices between giving up luxuries of the body (e.g. resturant food), for luxuries of opportunity (e.g. schooling). If you are rich, you can have both your yatcht and private school. You can go to the country club, and keep a maid at the same time.
Being poor on the other hand is about making choices between necessities like "should we have water or power this week? pick one" or "should our food be nutritious or should we clean our clothes? pick one".
Those numbers struck me as very strange. I've rarely eaten at places that are $62.5/head. But spending just $2000 on a wedding seems low. $10,000 isn't unheard of in the circles I travel in.
We rarely eat out during the week, and we don't usually eat dinner out both Fri AND Sat nights, but the above is fairly typical for us. I don't think it is too atypical for our peers either.
If they're even wanting to have a modest wedding with 80-ish guests nowadays, I can't imagine paying less than $15k (which is why I'm going to try to make it less than 20 people for mine. Hell, I'd be happy with 2).
That being said, I wouldn't want to eat out at a $50/person restaurant with a family of four once every week. You could take them to a bbq or pita or chinese restaurant and they'd eat well for under $15 per person.
I don't really disagree with your main point, just your numbers seem to be bad estimates to me.
The idea of spending $30,000 on a wedding seems insane to me, and it reminds me of the Dave Ramsey quote “If you will live like no one else, later you can live like no one else."
> That being said I personally think that's ridiculous and I'll do my damnedest to try to keep mine under $5k, but I know it won't be easy, and there will have to be many things sacrificed.
My wedding (2 years ago, in the midwest) had about 100 guests and cost us about $5000 total (doesn't include the rehearsal dinner or the bar tab, which our parents covered). There were probably some things that we could have spent even less on, but it would have required us doing more things ourselves. A few things we did that might be different than the norm:
* My wife, mother, and grandmother made many of the decorations themselves
* The reception venue was less expensive because we had the wedding in April, because it wasn't during "wedding season"
* We had the grocery store make our cake for us
* We didn't pay anything for the ceremony location (there are many beautiful public venues that you can book for free)
* My wife chose a dress that was beautiful, but wasn't obscenely expensive. She also recovered about half of the cost by selling it afterwards.
It's kind of funny. I've been to six weddings in the past five years and none of them had over 50 people.
I guess some people just have more friends and family or are under some kind of custom wherein they invite 2nd or 3rd cousins or minor acquaintances to their weddings.
My best friend's wedding was 40 people, total cost to the bride and groom $1000. Location: a beautiful beachhouse owned by his aunt. Food and the such done by the family, and everyone who flew in stayed in houses of relatives. Photography done by my wife, music by his brother.
Save money on your wedding, spent it on your honeymoon.
> I wouldn't want to eat out at a $50/person restaurant with a family of four once every week.
I like exotic food with ingredients and cooking conditions I can't replicate at home, so $50 a plate it is.
> I don't really disagree with your main point, just your numbers seem to be bad estimates to me.
Right :)
That's really the issue at heart. Everyone makes choices that X is worthwhile, and Y isn't worthwhile. Some people choose no luxury at all, save all their money and cash out at 35 to retire.
Oh, come on! When a friend decided to get married, he and his fiancee went downtown and got married by a judge. Just the two of them. They fed each other french fries at the nearby McDonald's. They're still married 30 years later.
And, partially as a result of that frugality, they recently had the enviable problem of how to invest $1,000,000 cash, when they sold their big house after their kids grew up. They're currently living in a simple 3 bedroom, 2 bath tract house because they don't need more.
Another friend also got married downtown by a judge. I was there as best man, there was also a maid of honor. That totals 4 people. That was 1990. They're still married.
Weddings don't have to be expensive.
Maybe so, but that definitely didn't used to be the case, which is pretty much the thrust of the article. Its other point is that the scale of the problem is hidden because people are ashamed to talk about it.
There are always going to be luxuries that you can't afford to indulge in regularly. That's what a luxury is!
Colleges and restaurants didn't used to be luxuries. I didn't fully appreciate that they now are, so this article is eye-opening for me in that respect.
(I'm from the UK where the college setup is different from the US, but it's moving in the same direction, a decade or two behind the curve.)
Similarly, more people are eating out in restaurants more of the time.[1]
I think you have a rosy view of the past that isn't supported by evidence.
1. http://www.bloomberg.com/news/articles/2015-04-14/americans-...
The big question is how well the middle class is doing today. They did pretty well in the past and the expectation was that things would continue getting better.
(Edit to clarify:) I figured that things are actually still pretty good for many people, but this article's claimed "47% of people can't easily find $400 in an emergency" seems to fly in the face of that.
In my neighborhood, some restaurants are $20 a meal. These places have been in business for over 15 years, and serve decent quality food but only staple ingredients with spices.
The newer resturants that have openned serve fresh imports from another hemisphere away, and start at $50 a plate.
So there's a choice at least here---you can get $10 sushi with tilapia, or you can go get $35 sushi with blowtorch cooked kobi beef.
As I've gotten older, I trend more towards the Kobi beef place myself... and I think that's how it is with most of the middle class. Cheaper choices do exist, but we consider them 'below our standards for a night out' especially considering that age+experience leads to better home cooking.
What makes you say that? I talk to my parents and my grandparents and they all had to sacrifice for their family.
I can't think of a single time in history when people generally had so much disposable income that they didn't need to worry about money.
I'm not sure where he might have sent his kids for K - 8. In any event, people generally move out to Long Island suburbs for great schools. He could have just as well made the sacrifice of using that money for private schools instead on a house in a district that met his standards of schooling, which would have had a much lower NPV via a 30 year fixed mortgage than paying for private school annually. Plus, his house would likely have risen more in value.
It sounds to me like the author might just be a tad more financially illiterate than he should be given his lifestyle.
Spend $100K on a wedding, and then save $15 on a movie a week/two-weeks to make up for the remainder of your life.
Why would you even get into this situation?
My colleagues tease me about my 15 year old car with nearly 300k miles. My peers at work mostly lease BMWs and SUVs. But cars are an expense with a payout worth little to me. (If I was a hotshot salesdude, that trapping of success would have a high value.)
You can't have it all. If you try to do so, you're going to sacrifice something -- and in most cases you sacrifice your future.
Not that I'm blindly hating on BMWs. Love their cars, and I have two of their motorcycles in the garage (one for me, one for the wife). I'll say upfront that my R1200GS is probably the finest motorcycle I've ever owned. But cheap to run it ain't (for example, it apparently needs a $100 set of rear brake pads every 5K miles; no, I didn't drop a zero). If I wanted cheap-to-run, I'd have bought another Honda. "Luxury brand" means it will continue to be a luxury to own even after the initial price is paid off.
If I do buy a car again I'll definitely do more research on reliability repair and service costs.
I'll save you the trouble: Toyota. Boring as hell, and with "boring" come reliability and low maintenance. I seriously worry sometimes that I'm forgetting something on our Scion (a rebadged Toyota Echo) because it so rarely requires attention. And Toyotas have been known for reliability for decades. The old SR22 engine is the stuff of legend. Assuming Hondas are as good as they were 30 years ago when I last owned one, and are as reliable as their modern motorcycles, they would probably be a good bet as well.
My goal for cars is to average $2,000/yr in vehicle cost over its lifetime. I hit a home run with my car, but my wife's minivan will miss the mark. (Because the sliding doors break annually)
That seemed a worthwhile investment to me.
Uhm, it's right in the article that he had to ask them to pay for heating...
Put your own oxygen mask on first. Aviate, navigate, communicate.
I know when I go to work I'm pretty much surrounded by millionaires. I know when I park my car there, it's surrounded by Lotuses and Teslas. What I really want to see is a venn diagram of the two, because I suspect a large portion of the latter are being mortgaged by people who don't have any real exit strategy.
In the UK if you told someone you'd be moving to the Bay Area on a starting salary of $130k you would be looked at like you were minted for life. For most tech graduates that's more than their parents' final salary and that's where you get in at! However there's a disconnect between what seems like a high salary and your spending power in somewhere like San Francisco.
Over here tech salaries are a lot lower, though still good compared to everything except finance. Anyone who lives in London will assuredly not be buying a Tesla on a Google starting salary.
People like saying "Oh he earns a six figure salary", it's a status symbol, and the natural response to earning that sort of cash after going through college and being dirt poor is to splash it a little.
It's a fairly common question on Quora:
https://www.quora.com/I-just-received-a-full-time-job-for-10...
"Natural reaction" is a cop out. People who get hired for being really freaking smart should be smart.
When people say these things, I wonder if they are perhaps not thinking about taking drastic action.
For me, when I do disaster planning I think about extra-ordinary measures.
For example, when I was in my 20s if I needed 2000 in the next month I would have planned to at:
- At age 21. Break my lease and move in with my parents. The lease was month-to-month, and would have instantly put an extra $1000 per month in my pocket + food savings.
- At age 25. Break my lease taking a $6000 hit, but that'd be paid in installments over the next 12 months whilst I could certianly find a place that's worth less than $3,000 per month in rent.
- At age 29. AirBnB my house or co-let. It's a good area, I'd be surprised if I couldn't scrounge up $2000 that way fairly fast.
That's just an example of focusing on housing.
Another thing to do in desperate need would be to cut digital communications and sell equipment. Do you have an iPad or Macbook? Can you sell one and use the other? How about a smartphone. Sell it (300+ dollars back) and switch to cheapeer services (maybe around 50-80 back).
----
Tl;Dr.
People with $100,000 a year income have assets that they can sell or lease to cover a $2000 transaction, but they answer the question as if thinking "if I change nothing at all, can I come up with $2000".
That's not how budgets work.
I could sell my house and come up with tons of money. That doesn't count. I can also just pay an unexpected $2,000 expense (like my $3,000 unexpected tax bill) out of savings.
The point is that a lot of Americans don't have liquid assets they can use in the case of a minor emergency.
Cars aren't very liquid. You can sell them to a huckster with a lot in the shady part of town for 1/3 of what you could get by putting an ad on Craigslist and waiting a few weeks. If you don't have a few weeks, this is a problem.
> We have no retirement savings, because we emptied a small 401(k) to pay for our younger daughter’s wedding.
The author isn't mysteriously broke. Money is not being stolen from his account. Rather, he's spending a lot of money on things which he believes are necessities (like paying for a child's wedding), and sacrificing a lot of things which he believes is optional (like having retirement savings). Some would suggest both categorizations are wrong.
Also:
> we believed [our children] had earned the right to attend good universities
That's actually not how university tuition works, and the rhetorical tricks being deployed here leave me cold. Your daughters did not have the right to attend those expensive private universities; they had the privilege of doing so, because you spent a lot of money you didn't really have to obtain that privilege for them. Which is awesome for them! No doubt it will benefit them (which is why you paid all that money, I imagine). But it's not entirely clear to me how "middle class" paying for your children to go to some of the most expensive schools in the world really is?
> The author isn't mysteriously broke. Money is not being stolen from his account. Rather, he's spending a lot of money on things which he believes are necessities (like paying for a child's wedding), and sacrificing a lot of things which he believes is optional (like having retirement savings). Some would suggest both categorizations are wrong.
Bingo.
As much as I think of social security as a ponzi scheme, one thing I do like about it is that it forces people to contribute and they can't touch their contributions. Sure you might only get $.60 back for every dollar you throw in there but hey at least you'll get something.
It's sad to say it, but the majority of people are not financially savvy enough to make sound decisions. Left to their own devices most people wouldn't save diddly squat, work till they're fired, then be destitute. And they probably won't have kids to take care of them anymore either because "Kids are expensive ... you can't afford that!".
Not saying people have no responsibility, but the odds are kind of stacked against you - it is an uphill battle to survive.
Instead, it was "invested" in government bonds, which is equivalent to saying, "oh, I'll just raise the money later". But that's courting disaster: if you have these unfunded obligations that come due, you have to gore an increasingly difficult amount of taxes out of your base, which can become rapidly impossible if and when people start fleeing from the burden.
We could have kept the forced savings but given people back more than a real dollar per dollar forced to contribute.
The article strikes a chord with me, because the author exhibits some of the same thinking as my own parents. They paid for my brother and I to go to college, for which we are very grateful. But they also say that the giant house in an expensive zip code, the foreign cars, etc, are "for us" using some nebulous baby boomer thinking like "if you want to be somebody, you have to look like somebody."
Far be it for me to judge my parents' choices. But recently, my dad quit his job and started a business. At that time, he definitely wished he had built up more of a runway.
Even here, though, there's an easy trade-off. Expensive house in good public school catchment, or cheap house + private school. But, don't do both if you're stretched.
[1] e.g. like much of Europe, let you go where you're accepted, regardless of where you live, and let the public funds follow you
The nightmare many are facing is that it doesn't benefit them. Regardless of what self improvement one may receive from their degree, certain degrees are being awarded at a faster rate than the economy demands them, depressing wages for those who can use that degree to get a job and resulting in many who can't use that degree to get a job.
So, yes, there is some blame to be apportioned for the spending habits. However, there is also the systemic problem of real incomes declining significantly, with major life costs (housing, education, medical, taxation) increasing dramatically:
https://research.stlouisfed.org/fred2/graph/fredgraph.png?wi...
This problem is significantly worse if you use the old CPI, which some people feel is more honest:
http://www.soundmoneyproject.org/wp-content/uploads/2012/03/...
Either way, the decline in real wages in the face of rising major life costs is a major contributor to the increasingly precarious position of many middle class families.
I have more respect for someone who blows all their money on "hookers and blow" (or whatever their personal equivalent is) than keeping up with the Jones. If you're gonna flush your wad of cash down the toilet, pick your own stall!
I blow my money on charity medical relief in impoverished regions, not fancily-plated food.
And you can still go to college, but go to a state college and live at home. The con these private universities are pulling on the middle class is something for the history books. They sell this "university lifestyle" to impressionable, naive high schoolers who then throw themselves (or parents) into stupid amounts of debt just to live the lifestyle.
Stanford has some fantastic opportunities, sure. But those opportunities come with significant opportunity costs (at the very least, financially). For some, it is better to attend a state school; the mental calculus involved in making this decision is rather difficult for an 18 year old and his/her family, especially with all of the noise that surrounds the college admissions process.
If a kid is going to be a success, they'll be a success. Multiple studies support this: http://www.huffingtonpost.com/2014/07/20/where-you-go-to-col...
Disclaimer: I'm a proud Penn State alum, which was (at the time) my safety school. Just my $0.02.
As a mental exercise, I'm imagining a product that would, given a number of inputs, produce a bayesian curve of the applicant's possible outcomes, and then selects the best school for that applicant. While developing this product sounds like a fun side project, I can't imagine it gaining traction, because the aforementioned groups would get upset (read: not pay) that Prestigious U is not the best choice for Johnny, rather, Mid-Atlantic Middle College is. It would be difficult to get the secondary actors in the process to pay as well, because there is value generated for them by maintaining process homeostasis.
Current thinking would suggest that I should have gone to, say, Bucknell over Penn State (again, I understand n=1 here, and I am not measuring my level of selective perception), whereas I am very happy with the course of events and think it produced the best outcome. I have to believe there is some grain of truth to my line of thinking and a potential for value generation in the decision aspect of college admissions.
All of which seemed relevant to me since the author of TFA was making sacrifices to send his girls to Emory & Stanford.
But when people talk about wastefully expensive private schools, they really mean schools that have nothing over state schools but the price tag: GWU, George Mason, American, and the like. Combine that with a non-reliably-marketable degree like Psychology, Political Science, Communications, or Art History, and the result is disaster.
This doesn't contradict your point that real incomes are declining.
http://www.statista.com/statistics/183995/us-college-enrollm...
http://nces.ed.gov/programs/digest/d13/tables/dt13_302.60.as...
For one thing, top state universities are better schools than the majority of private colleges. They have research programs and a much wider course selection.
However, you didn't explain why. There are, IMO, two reasons:
- maintaining demand by incessant, aspirational media pressure e.g. if you don't have a Cinderella-like wedding costing $100K+, you are a failure (it is the most important day of your life, right? right?)
- easy availability of credit to finance these wants (not needs)
A lot of people believe that a $100K wedding must be better than a $10K one, or a $75K/year college must be better than a state university.
I'd exclude taxes and health care, though. These are a bit different, because you don't really have much of a choice here.
I see it more and more that parents are expected to pay for their children to go to school - which also means that a big part of my loans are probably because of my father's income being counted when I did the FASFA. If the non-dischargability of the loans is based on a lack of finanical history (which I know I'm in the minority but I do feel that's fair), then the applications for financial assistance really shouldn't take it into account unless your parents are actually paying for your school.
My value-system doesn't lump wedding and college together. It seems much more reasonable for parents to sacrifice their own well-being to send their kids to elite schools. The whole wedding thing seems crazy to me, though.
Considering how bad financial distress is for a marriage, it seems like a really terrible idea to stretch yourself for a wedding. There should be (not saying there isn't) no shame in getting married at City Hall, with a few of your closest friends and family. Could be the best marital decision you make, if it puts you on a better financial trajectory.
I went to an unknown stare college, stated at home and got a degree in computer science. After my first three years of working - almost 20 years ago - my salary has been comparable to anyone else's. No one cares what college I graduated from.
I doubt that middle class families in the past routinely had weddings that required the rental of dedicated space and staffing by a dozen or more paid individuals. Maybe you had it in the church and had a potluck afterwards in the basement, or maybe you had it in a large rural backyard.
Of course, before, middle-class people also did not retire for decades and expect to spend that time traveling and not working. They did not expect to drive cars with air conditioning, carry supercomputers in their pocket, watch 200 channels on TV, or live in large air-conditioned suburban homes.
So what has happened is that the perception of "middle class" lifestyle has grown to include considerably more consumption. That's ok. It's just sort of puzzling to read this piece--he seems to say "I've had a good life, I've gotten good things for my kids, I don't have money in the bank, but it's my own fault, so I'm not complaining." Which is nice, but why is that worth reading?
What constitutes 'core human experiences'? There are people in this very forum who think a vacation per year is a very valid human need because 'life happens only once'. So by many a measure 'the trip to vegas' is a 'core human experience'. Plus there is a very think line of difference between a vacation to vegas or grand canyon.
The right way to measure a 'core human experience' is to ask what is the person's highest priority? If you ask me nothing is more important to me than putting food on the table, having clothes to wear, a roof above my head and enough cash for my health expenses when I grow old. That said, now I have to plan my finances accordingly. I can't spend a good chunk on everything else and then complain I don't have enough.
People at all levels of income are faced with 'priorities', this includes millionaires as well.
You're right about those other goods though: if people have to shell out all their discretionary income to cover some minimum baseline in those categories, then that is a solvable problem. Arguably, though, education and housing have become positional (and thus intractable via discretionary income) because people are trying to achieve a relative rank through them, not some baseline of quality.
[0] basically a good that derives its value from its ranking relative to others, not absolute metrics https://en.wikipedia.org/wiki/Positional_good
My wife and I had a Vegas wedding. Without any hookers or blow. A total of four other people at our wedding; they paid their own way there.
My wife and I used the money we saved on our wedding to help fund the purchase of a house (and all the crazy additional expenses that involves). We're still married 20 years later,
Contrast that with one gal who had a very elaborate wedding, at an expensive venue, with many guests, and who subsequently divorced within a year. What of the "core human experiences" of all the people who attended that misbegotten wedding?
Life comes down to choices. Few people are rich enough to be able to afford everything they may feel entitled to as part of the "middle class".
systemic problem of real incomes declining significantly, with major life costs (housing, education, medical, taxation) increasing dramatically
All that is very true. But it doesn't excuse foolish financial decisions about the events that people do have total control over.
the decline in real wages in the face of rising major life costs is a major contributor to the increasingly precarious position of many middle class families.
Yeah, that and the fact that many people can't grasp the simple concept of saving for a rainy day.
They've sold people that they not only can, but should, live beyond their means.
http://www.businessinsider.com/manhattan-weddings-are-us-mos...
In my friend group, our incomes vary by about a factor of 5. We all spend about the same, though. Which means those that are making more are much more comfortable, putting money away for a rainy day.
In contrast, a college friend that keeps in touch makes more than any of us, but she likes to lease new cars every three years, and she must spend money on the poshest pre-school in the area, and she is shocked to hear about people saving $2/3/5k a month. That's money that could be spent!
I don't think I have a point here. I just can't wrap my mind around people making $150k and not being able to "raise $2000" in a month's time.
A person making $150k who has no savings/retirement/etc is a someone with very serious money management problems. In every state in the US, a $150k household income places you above the "middle class."
Source: http://www.businessinsider.com/middle-class-in-every-us-stat...
If you're making $150,000 - it really should not be huge.
>uber to the first bar - 15-20$
>drinks at the first bar - 15$
>several drinks and food at a brewpub or the like - 50$
>nightcap at a bar - 10$
>uber home - 20-25$ (surge pricing, bars closing)
Youve just spent 110$ in a single night out, essentially on a single meal.
rinse and repeat each weekend day, maybe up to 12 times in a month - youre out almost 1500$
That or i know a ton of people paying more than 200$ per month for their car payment. plus insurance thats a good chunk of money!
Theres two grand right there that could have otherwise gone into a retirement account.
"The secret shame of the American Middle Class is that they listen to people telling them 'it's not your fault' too much."
Human tendency is to always find somebody else to fix the blame on.
I know a lot of friends from school who would blame teachers for failing in tests and exams. They didn't get too far in life.
Like school, adults can always blame bankers or some secret cabal in the cellar for their problem instead of having to look inwards.
That's not middle class, that's called living paycheque to paycheque, or hand to mouth.
The most active voters are the older groups, and as people like the author reach their elder years with nothing to retire on, they presumably vote in their own best interest.
As it stands now, there are ~$4 trillion dollars[1] in 401k savings. It is currently not being taxed, with the assumption that it will grow during a person's working years, and be taxed when it is withdrawn, as income tax.
However, as people like the author reach a certain age, I am fairly convinced that there will be a significant tax on retirement savings from the responsible folks to pay for those who didn't save appropriately. Politically it's fairly straightforward: we have millionaires who can "afford" to help pay for the less fortunate! This ends up hurting the people who saved so that they could properly afford to send their kids to schools, to be able to go on vacations in their retirement, etc.
As much as the story has been "max out your 401k!", I'm fairly convinced that it's going to end up being a worse deal than people count on. I don't really have a solution other than to "diversify investments", but stories like this do terrify me. I plan for retirement and try to be responsible about how I live my life so that when I choose to retire, I'll be able to enjoy it and spend time with kids/grandkids or golfing/traveling/whatever.
[1] https://www.ici.org/policy/retirement/plan/401k/faqs_401k
Politically, it will be a slam-dunk to tax the crap out of money coming out of Roth IRAs in the future.
Ultimately, you have to be happy that spenders overlay for stuff, and the interest gains on savings are better than the tax hit, and day-to-day financial security makes you feel good and finances better opportunities -- like you can afford to move for a job or whatever.
For those of you who prefer the whistling-past-the-graveyard approach, Christopher Buckley's book 'Boomsday' is hilarious.
Anyone care to share how they are protecting their savings against this increasingly likely prospect?
Yes, definitely.
In addition to all the other diversification advice you can read everywhere, you need to have three pots of savings:
1) pre-tax retirement savings such as traditional 401(k) or traditional IRA
2) post-tax retirement savings such as Roth 401(k) or Roth IRA
3) normal cash and investments, outside of any sort of retirement scheme
Being diversified in that fashion will give you more flexibility to react appropriately to any changes in the tax laws.
And, if you can swing it, you also want some assets that aren't readily visible to the tax man. In decades past, that meant something like a Swiss bank account. Now, perhaps, it might mean something like gold coins.
And there are even more exotic ways to "shelter" your assets. My father, who was displaced by WWII, stressed the value of a good education in a useful field. A malevolent government could confiscate your house and your money, but it couldn't take away what was inside your head.
But the tipping point comes when you have to take too much from present workers for past obligations, and some of them say, "wait, screw this, I'll just take my labor somewhere else", which means they have to tax a bigger incentives, which scares off more workers, and spirals out that way.
Relatedly, I have grave reservations about prodding the entire economy to have a huge nest egg in 401k-eligible investments, which can distort the voting base into favoring government interventions that favor the largest companies over smaller ones that don't get publicly listed, changing the playing field.
[1] https://news.ycombinator.com/item?id=11537585
Reminds me of Mark Cuban's Ultimate Stress Test: http://blogmaverick.com/2016/02/08/some-thoughts-on-the-pres...
> In retrospect, of course, my problem was simple: too little income, too many expenses. Credit enabled me to forestall this problem for a time—and also to make it progressively worse—but the root of the problem was deeper. I never figured that I wouldn’t earn enough. Few of us do. I thought I’d done most of the right things.
The article is really about grappling with having "done most of the right things", yet not being able to afford "the right things", as well as the ensuing penalty.
I think the real point the article is missing: The standard-of-living in the US relies on unsustainable spending, compared to the 1990s-2000s. A deeper article might explore why the standard-of-living was being artificially inflated (a credit bubble, with its roots in the 80s). As a bonus article, consider if society turns against debt-as-a-way-of-life (like the generation that lived through the depression) or if the securitization-of-debt market begins to falter. That would be a true horror story.
PS. I think this is one of the meatiest articles to come out on personal finances in a long time, and it's far too meaty for the full discussion it should have (it'll be gone in a day on HCN, way past the 10 minutes or so any of us will spend on it.)
EDIT: Changed the bit about standard-of-living, which distracts the point. Yes real earnings are down, yes the employment ratio is down, yes college is unaffordable. But Total sq ft per house is way up, cell phones are a tech advance, so how you measure standard-of-living turns into another big topic.
For a variety of reasons (easy access to credit, the media, who knows what else) a great many people are living above their means. And that's a big problem.
Is it? Then why does it continue? It's a problem for the debtors, but not for the people and system that encourages, enables, and profits from their bad decisions.
Consumers must consume!
Not recent at all. I first read about it in The Millionaire Next Door book. Referred to as the "better than" theory [1].
Plain and simple, people don't like to save when they have the option. They like immediate reward. If you make $500 more a month after a raise, many people will reward themselves for the raise, justify buying something they've wanted, etc. After a while, the mindset that they are living just fine while spending the extra money sets in and they end up never saving the extra $500.
[1] https://en.wikipedia.org/wiki/The_Millionaire_Next_Door#.22B...
He should have taught them from an early age about budgets and outlier expenses and the real costs of things (e.g., good school district for them, not much work for his wife). Instead, he's kept them in the dark, to the point of burning retirement savings on a wedding.
No one is born knowing how personal finance works, and learning the hard way sucks. Parents have an obligation to educate their children about this stuff. It's tragic that so frequently, after learning the hard way themselves, they hide everything from their kids, and in doing so, set the kids up for the same set of hard knocks.
These lifestyle adjustments aren't easy, and the way to be good at them is the same as for anything else: practice.
But people don't practice when they are young because they have easy credit. By the time the problems can't be brushed away any more (even with borrowing), they have children, making the decision that much harder. And without practice, they don't even know how to downsize.
There are so many perfectly reasonable things people can do to save money that aren't even considered. What about moving into a small apartment, eating beans and rice, and riding the bus for a few years while you get back on your feet? Sounds bad to a lot of "middle class" people, but I bet it's more pleasant than a downward spiral. And if you do it soon enough, you can get back to a good place quickly.
And I don't buy in to the "whatever college you want" guilt. I'll tell my children they have a guarantee of state school (assuming they get in), or education I Germany (where it's free). Anything else they need to get creative or lucky.
On a micro level, sure you can say maybe send your kids to cheap schools. On a macro level, college costs are getting way out of hand. Private schools should be able to serve more than the 1 percent and the really poor on full rides.
I graduated 10 years ago from an elite private university. It was expensive then, but it's a complete bargain today. Prices are raising much faster than inflation. I'm trying to save a few hundred thousand for each kid for college, but in 16-18 years, that won't go that far.
I'm only going to pay to send my kids to a private school if its a really good one, but I'm not going to tell them there is a whole class of schools they can't go to just because I'm cheap.
I'm not limiting their options. I guess if one of my children is absolutely determined to jump into big time debt to go to Harvard, I probably wouldn't stop them.
But I won't destroy myself financially just because I'm afraid to explain to my children that choices have costs (list price of Harvard is something like $80k/yr). Also, my children are more different in age, so if I go broke on the first one, the next one wouldnt have the same opportunity.
The choice I'm offering is really not a bad one. I'll pay something reasonable, and if they can make up the difference with work and scholarships, great. If they want to do research, they can always go to MIT for grad school.
Also, by the time they go, things might be different. So many people got burned by the "go to whatever college you want, regardless of price" idea that it might shatter the prestige of any private school below ivy league. Or more people might do the first two years at CC before going to university, and that might carry less stigma.
"I don’t ask for or expect any sympathy. I am responsible for my quagmire—no one else. I didn’t get gulled into overextending myself by unscrupulous credit merchants. Basically, I screwed up, royally. I lived beyond my means, primarily because my means kept dwindling. I didn’t take the actions I should have taken, like selling my house and downsizing, though selling might not have covered what I owed on my mortgage. And let me be clear that I am not crying over my plight. I have it a lot better than many, probably most, Americans—which is my point. Maybe we all screwed up. Maybe the 47 percent of American adults who would have trouble with a $400 emergency should have done things differently and more rationally. Maybe we all lived more grandly than we should have. But I doubt that brushstroke should be applied so broadly. Many middle-class wage earners are victims of the economy, and, perhaps, of that great, glowing, irresistible American promise that has been drummed into our heads since birth: Just work hard and you can have it all." (emphasis added)
The point is that though the author screwed the pooch on his finances, he assumes that he is a lot better off that most Americans. If true, that should be shocking to us all.
Other commenters point out that those that did save will have to rescue those that have not and that is a BS thing to have to do. I think that is probable, though not certain. However, like this student loan time-bomb, I think that forgiveness is the best path. Yes, we can lord over those that were dumb and did what others told them to do without really thinking. But I would rather have happier and less-stress neighbors and fellow citizens with the forgiveness even knowing that they will do it again and thinking to themselves that they cheated the system and won. We can be 'right' but have to sit in the mud, or we can forgive and all be happier and wiser for the next round.
I frequently run in to relatives and bosses and other senior people who complain of not having money or expressing surprise when they learn some one earning far less or doing a job that they think is beneath them makes/has made a good investment. Finally they tend ultimately complain of life being unfair to them. Forgetting the fact that they make 5-6 times more and their state is their own doing.
Yet more I look at their lives, I see a spending pattern that co relates to borderline nonsense. They take vacations because some one else is, and not taking one frequently means losing brag rights in social circles. They have cars they don't need, they buy expensive cameras and lenses they are likely to never use or even know how to. They buy clothes which they are going to not like a month later. They change gadgets every year. They seem to spend money on everything which they don't need, or use or even remotely derive any value from.
Its simply a never ending cycle of upgrades and added finances time after time, which isn't unsustainable.
Even some very intelligent people I know are very poor in understanding large timescales, how investments work, how their own spending can be destructive to them.
At the very same I see people making far less, but a home early in life, start contributing to that retirement fund early and come out on top.
Honestly in the free market economy, freedom seems like something most people are incapable of handling. People have themselves to blame.