This is really disingenuous because inflation is not telling the full story of why people spend more. Living costs more. Healthcare has outpaced inflation blisteringly, and employers provide for it less. IIRC a typical child birth can cost $10,000 in medical bills. How long does that take to save up on $60k/year with a mortgage and a car payment?
Don’t get me wrong, I don’t feel like I’m having a hard time in life at all. I feel like I am compensated fairly and I am able to save money while having fun. But while I am living well now, I grew up in a family where nothing was guaranteed. We’d been homeless at a time. That was with dual income.
A household income of $60k just does not budget well today. Period. Comparing this to obesity is, again, imo pretty disingenuous because the reality of obesity is that the exercise helps very little at all. Exercise without diet does almost absolutely nothing. Diet without exercise however can work just fine.
At the end of the day every analogy has limits but I think this doesn’t pass the smell test.
> Diet without exercise however can work just fine.
I think that's the point. Earning more is hard, you need to get a raise or find a new job. That's "exercise". It's the obvious fix, but it doesn't really work.
Instead the workout makes you hungry. The raise in pay tempts you into buying a new car. So you stay over weight, or fail to save money.
Cutting your spending or going on a diet can work on their own.
I think the math works better for people earning lots of money and spending it all. Being poor is hard and unexpectedly expensive.
My point is that cutting spending alone does not do anything. You burn calories in idle. You do not make money the same way.
For most people you have pretty decent physical control over what goes down your throat. However you can’t just choose to not pay for things. You or your family get sick? Car accident? Want to have a child? Need to buy something expensive for your occupation?
Granted, with both money and calories compulsion can be a problem, but I’m kind of sick of the focus on this aspect because most poor people I know aren’t poor because they spent any more irresponsibly than me or anyone well off I know. And I don’t know anyone who makes less than I do that has more savings. People want to believe they have worked hard to get where they are and I understand that because I feel the same way. But not acknowledging that poverty is a wage/cost of living issue is not helping the world.
If you can't afford to have a child, then you can (and probably should) choose to not have a child.
If I need something for my occupation, then my employer will pay for it.
The other things you mention seem to be issues primarily in the US, as getting sick or having an accident won't leave you out of pocket in any other western countries that I am aware of.
I agree you shouldn’t have a child if you can’t afford one, but are you saying it would be OK if the median family income could not support a child?
> The other things you mention seem to be issues primarily in the US, as getting sick or having an accident won't leave you out of pocket in any other western countries that I am aware of.
Well that’s kind of important considering this article is about the U.S. and uses U.S. median income figures and U.S. inflation.
I think the amount you need to make to 'afford' to have a child is so small, that it's not really worth talking about for the average American family (NB: in this case I'm talking about a married couple).
If you want to drive 2 new cars, put your kids into a private school and have a 5,000 square foot home, yeah, you'll need a fairly large chunk of change. But none of those things are necessary to be a good parent.
> However you can’t just choose to not pay for things.
Sure you can. The article even has examples.
> In the 1950s camping was an acceptable vacation. Hand-me-downs were acceptable clothes. A 983 square foot house was an acceptable size. Kids sharing a room was an acceptable arrangement. A tire swing was acceptable entertainment. Few of those things are acceptable baselines for most households today. The average new home now has more bathrooms than occupants.
> most poor people I know
I think this is the disconnect. The article is about the 50% of Americans that have nothing saved for retirement. Not Americans who are poor. It's specifically about how you can make lots of money but have nothing saved.
If we talk about poor people, then I agree with most of your comment. It's just not what the article is talking about.
I don't think the average American has any real sense of how much better off they are than even people in most of the Western World. People point to places in Europe with high tax rates as these absolute havens, when in reality you're probably not making much money (and that's assuming you're even employed!)
The birth rates in Europe are dire.
I'm from New Zealand, but live in America now. Average incomes are so much higher in America it's not even funny. The average American house is so cheap and you can fix a mortgage for 30 years.
> You or your family get sick
Most Americans get health insurance through their employers
> Car accident
Insurance is not that expensive
> Want to have a child
Also, not that expensive
> Need to buy something expensive for your occupation
Likely that your employer will cover this, or you're making enough for this to be worth your while.
In most of the world, people don't roll around with $500+/ month in car payments, as a birthright.
America is a terrible place to be on the bones of your ass poor. That's not true for someone making anything closer to the median income.
There’s a lot going on here, like assuming a $500/mo car payment (I feel like I have a good car and the payment is less than half) is necessary for it to impact ones budget. Car ownership is unfortunately necessary in most of the US, even nice areas, and the same cannot be said about many other places. There’s a lot more costs to it than the monthly payment. Insurance is mandatory so that’s one. Gas, maintenance like oil, tires, etc. also add up.
This is also devolving into whataboutism. It’s not like other places don’t have issues with income, in fact I bet it is worse in some places. But then you’re really comparing apples and oranges. My whole point is that life in America decades ago and life in America now are significantly different and its wholly unreasonable to compare incomes and make conclusions with a mere adjustment for inflation. If that’s true, then comparing the U.S. to other countries is even less reasonable.
I’m not going to dig into your assertions, it doesn’t sound like you have first hand experience with lower class American living and I’m not sure trying to explain the trouble in Hacker News comments will really work well. Needless to say it’s complicated.
I’ll dig into just one. “Car insurance is not that expensive.” Well that certainly depends.
I grew up in Michigan which admittedly is an absolute worst case for car insurance. My insurance costed about $100 a month, but only because I got it through my parents: had I tried to go it alone, I’d be above $200 a month.
This is all with a $1000 deductible. Well I had accidents and guess what, even though they weren’t my fault I had to pay basically the entire cost because the repairs came to around $1000.
There’s also different kinds of insurance. If you don’t have a new car, you may opt for cheaper insurance like PLPD, which basically covers nothing, but if you count your spare monthly income in the hundreds and have no substantial savings is probably not your worst choice.
Re: health care, If I am the first person that has to argue about health care costs to you I’d be shocked. I did have coverage through my employer and still have paid thousands in dental and hundreds in minor visits to the doctor. Health care in the US is incredibly complicated and knowing exactly what you’re going to pay in a given circumstance is probably not possible.
> IIRC a typical child birth can cost $10,000 in medical bills.
Assertions like this — there’sa similar one about hip replacements being more expensive in the USA than flying to Spain for the op and living there for two years — always make me wonder why health tourism from the USA to basically anywhere else isn’t more common.
> Assertions like this — there’sa similar one about hip replacements being more expensive in the USA than flying to Spain for the op and living there for two years — always make me wonder why health tourism from the USA to basically anywhere else isn’t more common.
Because most people don’t pay that. Medicaid covers half of all births in the US. Insurance covers almost everyone else. We just had a baby last year. Insurance covered almost everything.
There's a pricing/information problem. Say you hear that the hip replacement is $10k in the US and $2k in India. But there's also a place that's $1.5k in India and a place that's $2.5k in India. Which place is good? You haven't a clue. Do you take the risk? Are you going to end up with a hip that lasts shorter than you want it to? That'll be bad for you.
And then comes the fact that insurance pays for most people so the price is hidden. You don't actually pay $10k. Instead everyone pays slightly more than they should for insurance.
Except you do actually pay that $10k, just in the form of money taken out of your pay check to pay for insurance.
Insurance which you are likely not wanting to take advantage of because even with insurance you pay out of pocket (albeit subsidized by insurance).
It is along the southern US border for simpler procedures and more expensive dental care. Speaking anecdoctally, some immigrants also return to their home countries for more affordable care as well.
Yeah my wifes complicated birth coat 70000 usd and I paid zero. Most people are going to have it covered. And the price listed here is not actually what one would pay of they found themselves in the situation of paying in cash.
A household income of $60k budgets just fine in the majority of the US. Heck, it budgeted just fine in SoCal just 10 years ago. Of course half the households in the US make less than that.
It is true that inflation doesn't tell the full story. One example:
A typical family would have 1 car previously. This worked because they also had only 1 person in the workforce. I remember my mom dropping my dad off at work on days that she had errands that needed the car. However, the second car is often necessary because you have 2 people working and commuting to different places. Public transit is often nonexistent or poor enough that it adds over an hour a day to the commute time.
> Exercise without diet does almost absolutely nothing. Diet without exercise however can work just fine.
This is only true because people who aren't paying attention to their diet will naturally eat more when they exercise more (even ignoring the whole "I earned this pizza" effect TFA mentions).
If you are currently maintaining your weight, log what you eat and eat the exact same foods and exact same amounts of food with and without exercise (say running 5k per day), you would lose weight. For this specific example it's about 1 pound every 10 days that you would lose. Of course if you define "diet" as paying attention to what you eat, then this would technically be a diet, but I don't think that's what you meant by diet.
That's of course not to say you shouldn't diet. Cutting out a single 20oz bottle of soda per day is almost as big a calorie shift as running a 5k every day! Which is kind of the point the article is making; big gains to savings can be made by small cuts to spending.
Of course this really only applies to households near the median. Once you get down under $40k per year for a family you get to the point where all your savings will be wiped out by an emergency expense (with healthcare being one probable source; households under $40k per year are likely to be under-insured)
> This is only true because people who aren't paying attention to their diet will naturally eat more when they exercise more
Because you are hungrier when you induce a calorie deficit, which is why this is such a consistent finding. It's not just poor choices / bad decision making / psychology.
And using willpower to control your intake and cause it to be less than you are "naturally" hungry for sounds a lot like dieting.
Which is why exercise without "controlling your diet" generally does not lead to weight loss in free-living individuals.
not sure why I got downvoted but in order to get truely wealthy you have to invest your savings and not just put it in a bank account that accrues almost no interest. If you do that then agree it will be eaten by inflation eventually.
I've said this many times but I find it amusing how I get downvoted every time I bring up the stock market. Seems like so many on here think it's a scam, a bubble, or something else.
The reality is anyone who has thought like that over the last 10 years has missed out on a once-in-a-generation opportunity to multiply their savings from the recession lows.
I'm convinced most on here essentially missed out and trying desperately to justify their mistake through negative thinking.
And no one is saying you need to invest in individual stocks outside the S&P. It isn't "luck" to make money on an index fund. Perhaps you can argue it is "luck" to beat the market, but not to simply grow your money investing in the broad market.
It's because of complexity and lack of trust in the people perceived as running it (especially after 2008). Derivatives, high frequency trading, MBS, and a handful of other acronyms aren't understood by the vast majority of people. That alone wouldn't be an issue if the experts were at least perceived as trustworthy.
This isn't unique and could happen in many industries.
It's an image problem combined with extreme (intentional) complexity. It's also very deserved IMO.
Presumably, there's a tradeoff between risk and interest rate, right? If you buy national bonds at 1.5%, you're accepting very low growth presumably in exchange for near-zero risk. If you park your money in a bank account earning 2%, you're getting a bit more, presumably at some higher risk.
If you're earning 10% or 15% on the stock market through a balanced profile of index funds, doesn't that suggest that there must fundamentally be some significantly higher risk associated with that? How much exactly? Otherwise I assume nobody would be buying bonds at the available interest rates.
Why do I see so many people these days giving financial advice that the only responsible thing to do with your money is invest it in the market? Undoubtedly that's been great advice over the past 10 years, but past returns are no guarantee of future performance, right?
Is it mainly post-2008 that it became common sense that the average person should park their savings in the market?
What does the market think the actual risk level of an index fund is?
Or else why does anyone buy 10-year bonds?
I'm really curious to hear thoughtful responses about this.
Why does anyone buy 10-year bond? It's because they value stability in returns over absolute returns. While it is true that over the long run the stock market will outperform current bonds, it isn't always true that it will in the short-term.
If your a pension fund, a retiree, or anyone else who will need to spend money in the short-term, it often makes sense to forgo some long-term returns for short-term stability.
You're correct that past returns are no guarantee of future performance; however, there is 100 years of history (not to mention economic theory) that supports the assumption that equities will outperform current interest rates over the long run.
I guess I didn't think of 10 years as the short term. Let's say the 30 year bond then. The 30 year bond rate is something like 2.5%... Who would buy that if it was vanishingly unlikely that equities would return less than that after 30 years?
I guess what I'm trying to get at is, is there a way I can estimate the probability that equities will return less than 2.5% over the next 30 years, given the information that the 30-year bond rate is 2.5% and the expected return on stocks is, say, 10%, and the market is efficient and some people buy bonds anyway?
One thing to keep in mind is that people who are buying 30 year bonds often aren't planning on holding them to maturity; rather, they are looking for an asset that is relatively stable in value while also generating a small return.
Can you estimate the probability of your scenario? Sure, you could use the historical volatility of equity returns to calculate the chance of that happening. However, unless you add in other factors that you think could realistically hurt future equity returns, I think you'll find that probability to be very small.
Yes! I bought a ton of VTSAX back in 2008 - 09. It was painful at times, seeing those losses. More than 10 years later, I have indeed tripled my money. The only thing I regret is not buying more.
> A household income of $60k just does not budget well today.
It doesn’t make any sense to talk about “budgeting” with a household income of $60,000. That includes everything from married couples with kids in expensive cities to young single professionals in low cost cities. It makes more sense to look at median income by household type: https://www.census.gov/content/dam/Census/library/publicatio...
As to geography, the states with a median income around the national median are Oregon, Wyoming, and Wisconsin. These are places where a family home can be bought for well under $300,000.
Additionally, the statistics include households of all age groups, including young single people. The median income for a family household is $80,000. For married couples it’s $93,000. For a family of 4 in Wisconsin, the median was $89,000 in 2017.
As to health insurance: In the $50-75k demographic, 90% of people are insured, so the cost of birth is covered by insurance. (Most children are born to lower income people, for whom Medicaid is available. Half of all births are covered by Medicaid.)
> That includes everything from married couples with kids in expensive cities to young single professionals in low cost cities.
Why do people keep writing stories like this without taking into account the city/local cost of living and inflation? It makes no sense!
Just yesterday there was a story about a 30 something year old who came out of early retirement because he couldn’t make it on 280K a year of passive income and everything in the article can be fixed by moving out of SF.
This is probably the first article on HN I wish I could downvote. Excluding inflation is super disingenuous.
We may be spending more, but it's on the order of 3-5% more (not counting debt spending), with the remainder of the income gain being wiped out by inflation.
I will say the exercise analogy is actually very correct though. Income gain helps very little at all with wealth since it helps very little at all due to inflation.
The OP references real incomes which means they are inflation adjusted. People are definitely spending A LOT more than 3-5% more than they did in 1955.
I do agree COL outpacing earnings is most of the problem, but at the same time, so many people are peer pressured into unnecessary overspending when they could've done just as well spending a fraction.
A big one is a pervasive perception you need to get into big debt (or any debt at all) to have a nice, reliable car. I firmly believe anyone can find a good used car around or even under $1000.
I bought mine (99 Jeep Grand Cherokee Laredo 4.7L) over two years ago for $750. Some odds and ends needed repairs over time including it coming with a bad alternator (I was aware before buying). I just completed a 3000 mile road trip with it and it's still good as new barring a manageable issue I'll have to get taken care of soon.
People in my peer group will be paying off much less nice cars for years and years while I'm saving and enjoying a great car with no finnicky distracting touch screen on the radio or other annoying misfeatures new cars are plagued with. My parents spent $8000 on a 2008 Nissan and the radio controls broke and would cost too much to fix or replace, the gas flap only opens with a hard to reach lever, the digital pedals are extremely oversensitive, and you can't even start it without pressing the brakes, which is especially annoying in the winter when you just want to lean in and start it to warm up.
The same principle goes for appliances, furniture, almost anything. Don't trap yourself in a lifetime of being cash poor when the alternative on craigslist for 1/10-1/100 the price is just as good or better.
>I do agree COL outpacing earnings is most of the problem, but at the same time, so many people are peer pressured into unnecessary overspending when they could've done just as well spending a fraction
Nothing about companies being peer-pressured into underpaying their employees? That is, it's not the COL outpacing earnings, it's pay being kept below COL. It's held below by individual people repeatedly making discrete decisions to do so, i.e. with full intent.
However you want to frame it and whoever's fault the COL disparity is, it's orthogonal to the point that a lot of people would be financially better off buying used instead of taking out leases on things.
Part of the COL changes are out of your control. Say you want to buy a 900 square foot house-- it's difficult to do so, since tastes changed in aggregate. Those houses get torn down and 2000 sq ft homes go up in their place. You can't spend less, even if you wanted to, or minimally speaking, it's much more difficult to consume less.
You'd have to be really trying, in order to have no income with high wealth. You'd have to purposefully not lease your properties and try and keep all your money somewhere you can't make interest and also refuse to invest in even the most risk averse prospects.
It is trivial to profitably invest wealth while producing no income: invest in companies that don't issue dividends, whether public or private. You can achieve excellent investment returns solely on appreciation.
I know more than a few people with excellent investment returns and quite a bit of wealth that realize almost zero income from that wealth in a typical year. It is a common strategy, particularly if you do not need the wealth to produce income.
> If you're truly wealthy, your financial advisor won't let you do either one. So the OP was correct.
You don't get wealthy without making risky investments.
For example, I went to lunch with a billionaire once. He told me he made the money in stocks by mortgaging and margining everything he had, and buying volatile stocks.
Do you think Musk's SpaceX and Tesla are low risk investments for him?
Wouldn’t capital gains be considered income? Especially if it’s received as part of some work, either working for someone else and getting equity or your own startup and getting equity. Sure it’s not salary income but it’s typically be considered part of total compensation for work.
Sure but that’s like saying anyone that’s worked for 40 years and saved up a nest egg is wealthy without income, or a CEO between jobs is wealthy without income. There most certainly was income at some point.
There are lots of elderly people in California that never had high incomes, but now have a few million in wealth. They often don't feel wealthy because they often don't feel comfortable using the financial tools that would give them some liquidity.
The truth is that post-war America was blessed by ridiculous growth for that half-century across all industries. That's not going to happen again. We have true global trade now and labour is fungible.
Reality is different now, guys. There's competition. And they're fucking good at what they do.
Alternatively, we can look to our fellow workers overseas and realize we have a common interest to not be exploited. We can work together towards a new system where we do not allow the free movement of capital to mercilessly exploit workers.
It's been 172 years since the workers of the world were asked to unite. They've realized in the intervening period that not only does the roofer in North Carolina share less in common with the road layer in the Philippines than the roofer business owner in NC but also he doesn't want to share more.
I, for one, don't care to shore up the race to the bottom. It's a physical law. I'm just going to aim to be wealthy enough that I'm not at the bottom. That will do.
Systems that require "if we all do this, it'll work" will not work and life being limited, I'm going to optimize elsewhere.
This is really sad and defeatist. It's not a physical law, but we will be reduced to serfs if this continues. The people of the Philippines are bravely fighting, including in armed conflict against the Duterte regime and have forced some concessions.
exercise should increase metabolism, but yes the problem is you still have to eat less or at least the same as you did when you didn't exercise, and when you don't exercise you should eat even less then when you normally do
Totally unrelated to the topic, but I really like this style of writing/speaking, where you open with a story that serves as an extended analogy on a familiar topic, and then dive into the (usually more complex) actual topic.
Does anyone have any tips on how to do this effectively? Any time I try the story portion ends up feeling overly drawn-out or irrelevant.
1. Start with a bullet list of the points you absolutely have to make (the meat).
2. Make a second level to the bullet list where you fill in the gaps between the meat where you can add color and make the topic digestible (the vegetables/fiber).
3. Make a third level of the bullet list with all of the nice story points you'd like to add but are not necessary (the dessert).
4. Delete all those nice to have story points. If they're really needed, then they would have been added in step 1 or 2.
Don't add any more words for dessert -- the real treat is how concise you can be while still being interesting. If it's a long form article, skip step 4.
You could also say Wealth is the value you build for others. If you build a lot of value for others you get very wealthy. That does not mean you saved money, you invested money to build value for others.
This may be sound for someone with a moral compass. But you could also say wealth is the value you take from others (scams or well-meaning offers to others with highly questionable value).
It's very important to note that in this context the notion of "value" is weighted according to wealth. Feeding a starving kid creates zero "value" because the kid has no money. Owning a house in an area where other people are doing great things creates loads of "value," because those other people do have money.
Wealth is the value you build for wealth-weighted-people, not the value you build for people.
The comparison between food/exercise and income/expenses is analogous, but not equally challenging. It's easy to make $250k a year and only spend $50k because the diminishing return of spending money-- a single person can live a reasonably decent life on $50k. Compare this to earning $60k, spending the same amount, but spending less. Exercising completely wipes the diminishing return of food, albeit temporarily. Food tastes better and you are hungrier after a workout. It is easier to exercise financial constraint than dietary constraint.
> Hand-me-downs were acceptable clothes. A 983 square foot house was an acceptable size. Kids sharing a room was an acceptable arrangement. A tire swing was acceptable entertainment. Few of those things are acceptable baselines for most households today.
Hand-me-downs, room sharing, tire swing (or sidewalk games in our case), these are all features of my family's life now (as a fairly typical dual-professional household). My house is 1500 square feet, more than the typical for the 1950s, but the big difference is what that 1500 square feet cost to purchase and costs to maintain today.
> The average new home now has more bathrooms than occupants.
Most of the population lives in existing homes, not new homes. Housing cost these days is far more directly correlated to land value, which is itself correlated to location and access to "public" amenities like safety, transit corridors, "good" schools, job opportunities etc.
I'd wager that most people are actually getting by using many of the same strategies employed in the 1950s, and that people chased status by spending just as much back then as today, but that the game has changed dramatically due to a number of secular changes in the economy. These include effects of technology and automation, and globalization, which while they have increased the size of the global pie, have also reduced labor's (AKA most people) share of that pie.
The collective level of risk aversion on HN is ironic given the focus on startups, new age tech, and venture capital. Mention any investment vehicle that isn't a high interest savings account accruing 2% and you get downvoted into oblivion.
In 1955 the family income was usually only one salary. On the other hand you had a person full time cooking from raw ingredients, taking care of children and mending your clothes. So you didn’t pay for eating out, daycare, or buying new clothes all the time.
Once people do start saving and investing, a similar truism applies:
"You get what you don't pay for."
Jack Bogle popularized this statement. It means in investing, small differences in expenses make a huge difference over time. You get what you don't pay for.
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[ 4.0 ms ] story [ 164 ms ] threadDon’t get me wrong, I don’t feel like I’m having a hard time in life at all. I feel like I am compensated fairly and I am able to save money while having fun. But while I am living well now, I grew up in a family where nothing was guaranteed. We’d been homeless at a time. That was with dual income.
A household income of $60k just does not budget well today. Period. Comparing this to obesity is, again, imo pretty disingenuous because the reality of obesity is that the exercise helps very little at all. Exercise without diet does almost absolutely nothing. Diet without exercise however can work just fine.
At the end of the day every analogy has limits but I think this doesn’t pass the smell test.
I think that's the point. Earning more is hard, you need to get a raise or find a new job. That's "exercise". It's the obvious fix, but it doesn't really work.
Instead the workout makes you hungry. The raise in pay tempts you into buying a new car. So you stay over weight, or fail to save money.
Cutting your spending or going on a diet can work on their own.
I think the math works better for people earning lots of money and spending it all. Being poor is hard and unexpectedly expensive.
For most people you have pretty decent physical control over what goes down your throat. However you can’t just choose to not pay for things. You or your family get sick? Car accident? Want to have a child? Need to buy something expensive for your occupation?
Granted, with both money and calories compulsion can be a problem, but I’m kind of sick of the focus on this aspect because most poor people I know aren’t poor because they spent any more irresponsibly than me or anyone well off I know. And I don’t know anyone who makes less than I do that has more savings. People want to believe they have worked hard to get where they are and I understand that because I feel the same way. But not acknowledging that poverty is a wage/cost of living issue is not helping the world.
> Want to have a child?
If you can't afford to have a child, then you can (and probably should) choose to not have a child.
If I need something for my occupation, then my employer will pay for it.
The other things you mention seem to be issues primarily in the US, as getting sick or having an accident won't leave you out of pocket in any other western countries that I am aware of.
> The other things you mention seem to be issues primarily in the US, as getting sick or having an accident won't leave you out of pocket in any other western countries that I am aware of.
Well that’s kind of important considering this article is about the U.S. and uses U.S. median income figures and U.S. inflation.
If you want to drive 2 new cars, put your kids into a private school and have a 5,000 square foot home, yeah, you'll need a fairly large chunk of change. But none of those things are necessary to be a good parent.
Sure you can. The article even has examples.
> In the 1950s camping was an acceptable vacation. Hand-me-downs were acceptable clothes. A 983 square foot house was an acceptable size. Kids sharing a room was an acceptable arrangement. A tire swing was acceptable entertainment. Few of those things are acceptable baselines for most households today. The average new home now has more bathrooms than occupants.
> most poor people I know
I think this is the disconnect. The article is about the 50% of Americans that have nothing saved for retirement. Not Americans who are poor. It's specifically about how you can make lots of money but have nothing saved.
If we talk about poor people, then I agree with most of your comment. It's just not what the article is talking about.
The birth rates in Europe are dire.
I'm from New Zealand, but live in America now. Average incomes are so much higher in America it's not even funny. The average American house is so cheap and you can fix a mortgage for 30 years.
> You or your family get sick
Most Americans get health insurance through their employers
> Car accident
Insurance is not that expensive
> Want to have a child
Also, not that expensive
> Need to buy something expensive for your occupation
Likely that your employer will cover this, or you're making enough for this to be worth your while.
In most of the world, people don't roll around with $500+/ month in car payments, as a birthright.
America is a terrible place to be on the bones of your ass poor. That's not true for someone making anything closer to the median income.
This is also devolving into whataboutism. It’s not like other places don’t have issues with income, in fact I bet it is worse in some places. But then you’re really comparing apples and oranges. My whole point is that life in America decades ago and life in America now are significantly different and its wholly unreasonable to compare incomes and make conclusions with a mere adjustment for inflation. If that’s true, then comparing the U.S. to other countries is even less reasonable.
I’m not going to dig into your assertions, it doesn’t sound like you have first hand experience with lower class American living and I’m not sure trying to explain the trouble in Hacker News comments will really work well. Needless to say it’s complicated.
I’ll dig into just one. “Car insurance is not that expensive.” Well that certainly depends.
I grew up in Michigan which admittedly is an absolute worst case for car insurance. My insurance costed about $100 a month, but only because I got it through my parents: had I tried to go it alone, I’d be above $200 a month.
This is all with a $1000 deductible. Well I had accidents and guess what, even though they weren’t my fault I had to pay basically the entire cost because the repairs came to around $1000.
There’s also different kinds of insurance. If you don’t have a new car, you may opt for cheaper insurance like PLPD, which basically covers nothing, but if you count your spare monthly income in the hundreds and have no substantial savings is probably not your worst choice.
Re: health care, If I am the first person that has to argue about health care costs to you I’d be shocked. I did have coverage through my employer and still have paid thousands in dental and hundreds in minor visits to the doctor. Health care in the US is incredibly complicated and knowing exactly what you’re going to pay in a given circumstance is probably not possible.
Assertions like this — there’sa similar one about hip replacements being more expensive in the USA than flying to Spain for the op and living there for two years — always make me wonder why health tourism from the USA to basically anywhere else isn’t more common.
Because most people don’t pay that. Medicaid covers half of all births in the US. Insurance covers almost everyone else. We just had a baby last year. Insurance covered almost everything.
And then comes the fact that insurance pays for most people so the price is hidden. You don't actually pay $10k. Instead everyone pays slightly more than they should for insurance.
In America the price you see and the price you pay are not the same thing.
It is true that inflation doesn't tell the full story. One example:
A typical family would have 1 car previously. This worked because they also had only 1 person in the workforce. I remember my mom dropping my dad off at work on days that she had errands that needed the car. However, the second car is often necessary because you have 2 people working and commuting to different places. Public transit is often nonexistent or poor enough that it adds over an hour a day to the commute time.
> Exercise without diet does almost absolutely nothing. Diet without exercise however can work just fine.
This is only true because people who aren't paying attention to their diet will naturally eat more when they exercise more (even ignoring the whole "I earned this pizza" effect TFA mentions).
If you are currently maintaining your weight, log what you eat and eat the exact same foods and exact same amounts of food with and without exercise (say running 5k per day), you would lose weight. For this specific example it's about 1 pound every 10 days that you would lose. Of course if you define "diet" as paying attention to what you eat, then this would technically be a diet, but I don't think that's what you meant by diet.
That's of course not to say you shouldn't diet. Cutting out a single 20oz bottle of soda per day is almost as big a calorie shift as running a 5k every day! Which is kind of the point the article is making; big gains to savings can be made by small cuts to spending.
Of course this really only applies to households near the median. Once you get down under $40k per year for a family you get to the point where all your savings will be wiped out by an emergency expense (with healthcare being one probable source; households under $40k per year are likely to be under-insured)
Because you are hungrier when you induce a calorie deficit, which is why this is such a consistent finding. It's not just poor choices / bad decision making / psychology.
And using willpower to control your intake and cause it to be less than you are "naturally" hungry for sounds a lot like dieting.
Which is why exercise without "controlling your diet" generally does not lead to weight loss in free-living individuals.
The reality is anyone who has thought like that over the last 10 years has missed out on a once-in-a-generation opportunity to multiply their savings from the recession lows.
I'm convinced most on here essentially missed out and trying desperately to justify their mistake through negative thinking.
And no one is saying you need to invest in individual stocks outside the S&P. It isn't "luck" to make money on an index fund. Perhaps you can argue it is "luck" to beat the market, but not to simply grow your money investing in the broad market.
This isn't unique and could happen in many industries.
It's an image problem combined with extreme (intentional) complexity. It's also very deserved IMO.
So you think it's rigged. Now you missed out on 3x'ing your money in a boring index fund. Does that make you feel better?
Presumably, there's a tradeoff between risk and interest rate, right? If you buy national bonds at 1.5%, you're accepting very low growth presumably in exchange for near-zero risk. If you park your money in a bank account earning 2%, you're getting a bit more, presumably at some higher risk.
If you're earning 10% or 15% on the stock market through a balanced profile of index funds, doesn't that suggest that there must fundamentally be some significantly higher risk associated with that? How much exactly? Otherwise I assume nobody would be buying bonds at the available interest rates.
Why do I see so many people these days giving financial advice that the only responsible thing to do with your money is invest it in the market? Undoubtedly that's been great advice over the past 10 years, but past returns are no guarantee of future performance, right?
Is it mainly post-2008 that it became common sense that the average person should park their savings in the market?
What does the market think the actual risk level of an index fund is?
Or else why does anyone buy 10-year bonds?
I'm really curious to hear thoughtful responses about this.
If your a pension fund, a retiree, or anyone else who will need to spend money in the short-term, it often makes sense to forgo some long-term returns for short-term stability.
You're correct that past returns are no guarantee of future performance; however, there is 100 years of history (not to mention economic theory) that supports the assumption that equities will outperform current interest rates over the long run.
I guess what I'm trying to get at is, is there a way I can estimate the probability that equities will return less than 2.5% over the next 30 years, given the information that the 30-year bond rate is 2.5% and the expected return on stocks is, say, 10%, and the market is efficient and some people buy bonds anyway?
Can you estimate the probability of your scenario? Sure, you could use the historical volatility of equity returns to calculate the chance of that happening. However, unless you add in other factors that you think could realistically hurt future equity returns, I think you'll find that probability to be very small.
This difference is why smart investment is much more than "just luck".
It doesn’t make any sense to talk about “budgeting” with a household income of $60,000. That includes everything from married couples with kids in expensive cities to young single professionals in low cost cities. It makes more sense to look at median income by household type: https://www.census.gov/content/dam/Census/library/publicatio...
As to geography, the states with a median income around the national median are Oregon, Wyoming, and Wisconsin. These are places where a family home can be bought for well under $300,000.
Additionally, the statistics include households of all age groups, including young single people. The median income for a family household is $80,000. For married couples it’s $93,000. For a family of 4 in Wisconsin, the median was $89,000 in 2017.
As to health insurance: In the $50-75k demographic, 90% of people are insured, so the cost of birth is covered by insurance. (Most children are born to lower income people, for whom Medicaid is available. Half of all births are covered by Medicaid.)
Why do people keep writing stories like this without taking into account the city/local cost of living and inflation? It makes no sense!
Just yesterday there was a story about a 30 something year old who came out of early retirement because he couldn’t make it on 280K a year of passive income and everything in the article can be fixed by moving out of SF.
We may be spending more, but it's on the order of 3-5% more (not counting debt spending), with the remainder of the income gain being wiped out by inflation.
I will say the exercise analogy is actually very correct though. Income gain helps very little at all with wealth since it helps very little at all due to inflation.
I do agree COL outpacing earnings is most of the problem, but at the same time, so many people are peer pressured into unnecessary overspending when they could've done just as well spending a fraction.
A big one is a pervasive perception you need to get into big debt (or any debt at all) to have a nice, reliable car. I firmly believe anyone can find a good used car around or even under $1000.
I bought mine (99 Jeep Grand Cherokee Laredo 4.7L) over two years ago for $750. Some odds and ends needed repairs over time including it coming with a bad alternator (I was aware before buying). I just completed a 3000 mile road trip with it and it's still good as new barring a manageable issue I'll have to get taken care of soon.
People in my peer group will be paying off much less nice cars for years and years while I'm saving and enjoying a great car with no finnicky distracting touch screen on the radio or other annoying misfeatures new cars are plagued with. My parents spent $8000 on a 2008 Nissan and the radio controls broke and would cost too much to fix or replace, the gas flap only opens with a hard to reach lever, the digital pedals are extremely oversensitive, and you can't even start it without pressing the brakes, which is especially annoying in the winter when you just want to lean in and start it to warm up.
The same principle goes for appliances, furniture, almost anything. Don't trap yourself in a lifetime of being cash poor when the alternative on craigslist for 1/10-1/100 the price is just as good or better.
Nothing about companies being peer-pressured into underpaying their employees? That is, it's not the COL outpacing earnings, it's pay being kept below COL. It's held below by individual people repeatedly making discrete decisions to do so, i.e. with full intent.
Applies to a lot of areas in life and business, not just money!
Unfortunately, a lot of people conflate income with wealth.
You may generate wealth by holding onto a diverse collection of them as a hedge bet for selling in future.
I know more than a few people with excellent investment returns and quite a bit of wealth that realize almost zero income from that wealth in a typical year. It is a common strategy, particularly if you do not need the wealth to produce income.
And then they'll net very high income in other years. Take the average of all those years if you want useful information.
Invest heavily in a startup that goes bankrupt. Or go big into real estate right before the market dips. Same for stocks.
You have no net taxable income if your losses exceed your income in a tax year.
Both of those things are gambling.
If you're truly wealthy, your financial advisor won't let you do either one. So the OP was correct.
You don't get wealthy without making risky investments.
For example, I went to lunch with a billionaire once. He told me he made the money in stocks by mortgaging and margining everything he had, and buying volatile stocks.
Do you think Musk's SpaceX and Tesla are low risk investments for him?
Unless you're counting unrealized capital gains.
Just like being 5 miles away has no implication for how fast you're going.
Reality is different now, guys. There's competition. And they're fucking good at what they do.
I, for one, don't care to shore up the race to the bottom. It's a physical law. I'm just going to aim to be wealthy enough that I'm not at the bottom. That will do.
Systems that require "if we all do this, it'll work" will not work and life being limited, I'm going to optimize elsewhere.
Does anyone have any tips on how to do this effectively? Any time I try the story portion ends up feeling overly drawn-out or irrelevant.
2. Make a second level to the bullet list where you fill in the gaps between the meat where you can add color and make the topic digestible (the vegetables/fiber).
3. Make a third level of the bullet list with all of the nice story points you'd like to add but are not necessary (the dessert).
4. Delete all those nice to have story points. If they're really needed, then they would have been added in step 1 or 2.
Don't add any more words for dessert -- the real treat is how concise you can be while still being interesting. If it's a long form article, skip step 4.
Wealth is the value you build for wealth-weighted-people, not the value you build for people.
How much do you spend each year?
Follow up:
How much is discretionary and could be cut?
In my experience very few people can answer that, regardless of whether they are rich or poor.
The fact that I have friends--grown adults!--who don't know how much money the spend each month or year... is just astonishing!
No wonder the author came to their conclusions.
Hand-me-downs, room sharing, tire swing (or sidewalk games in our case), these are all features of my family's life now (as a fairly typical dual-professional household). My house is 1500 square feet, more than the typical for the 1950s, but the big difference is what that 1500 square feet cost to purchase and costs to maintain today.
> The average new home now has more bathrooms than occupants.
Most of the population lives in existing homes, not new homes. Housing cost these days is far more directly correlated to land value, which is itself correlated to location and access to "public" amenities like safety, transit corridors, "good" schools, job opportunities etc.
I'd wager that most people are actually getting by using many of the same strategies employed in the 1950s, and that people chased status by spending just as much back then as today, but that the game has changed dramatically due to a number of secular changes in the economy. These include effects of technology and automation, and globalization, which while they have increased the size of the global pie, have also reduced labor's (AKA most people) share of that pie.
https://fred.stlouisfed.org/series/MEPAINUSA672N
"You get what you don't pay for."
Jack Bogle popularized this statement. It means in investing, small differences in expenses make a huge difference over time. You get what you don't pay for.