For being the richest country in the world, we have some sad financial numbers.
I recently stumbled upon the 2019 Modern Wealth Survey from Schwab. It was quite interesting to say the least.
Here’s the full survey if you’d like to check it out, but I’ll be covering the highlights. Or should I say lowlights.
I have been writing about money for over 20 years (first in magazines and then blogs) and coaching people before that, so I’m pretty jaded when it comes to the average American’s financial status and habits (they are terrible if you haven’t noticed.)
But somehow I always believe things are better than they are. I want to think the best. I want to hope that people are educating themselves on finances and taking appropriate action.
Then I see a report like this and am brought back down to earth.
Anyway, let me share a few of the survey’s findings that I found especially interesting/depressing…
The Joneses on Social Media
Let’s begin with this finding:
More than a third of Americans admit their spending habits have been influenced by images and experiences shared by their friends on social media and confess they spend more than they can afford to avoid missing out on the fun.
Survey respondents place blame on social media platforms and not people—they rank social media as the biggest “bad” influence when it comes to how they manage their money, while they put friends and family at the top of “good” influences.
According to the survey, three in five Americans pay more attention to how their friends spend compared to how they save, with an equal number saying they’re at a loss to understand how their friends are able to afford the expensive vacations and trendy restaurant meals they portray on social media.
Wow. So much to unpack here. Let’s jump in:
1. “Spending habits have been influenced by images and experiences shared by their friends on social media.”
Social media is the new weapon of the Joneses. They post pictures of their over-inflated lifestyle and goad others to try and keep up with them. Keeping up with the Joneses was hard enough when they weren’t in your face, but now Facebook, Twitter, Pinterest, Instagram, etc. make it a million times easier for them to flaunt their supposed wealth.
And, of course, since most Americans have ZERO self-control and want their fun now, they respond by “spend[ing] more than they can afford to avoid missing out on the fun.” Is it any wonder they’re broke?
2. “They rank social media as the biggest “bad” influence when it comes to how they manage their money, while they put friends and family at the top of “good” influences.”
I agree that social media is a bad influence (in a lot of other ways besides money as well) because you compare your average daily life with someone else’s highlight reel. It’s tough.
But I think friends and family are getting off light here. If these groups were really good with money, then they would be good influences. But if they are average Americans, they are terrible with money which means they are not good influences. Said another way, if people are following money advice from friends and family, who we know are not great with money on average, then they are being sent in the wrong direction.
Maybe compared to social media friends and family seem good but that’s like saying eating dirt is better than eating manure — they are both still dreadful.
3. “Three in five Americans pay more attention to how their friends spend compared to how they save.”
Here’s the major problem — people are focused more on outside influences than what they are doing themselves. Bad move. They are focused on the wrong thing and thus get undesirable results.
Not saving (and it’s close cousin over-spending) are fatal money moves at the very top of my list of worst money moves anyone can make. By ignoring savings (and over-spending to keep up with friends), 60% of Americans are dooming their finances.
It all comes back to the fact that if they can’t control spending, no amount of income is going to bail them out of a financial disaster.
4. “They’re at a loss to understand how their friends are able to afford the expensive vacations and trendy restaurant meals they portray on social media.”
Haha! Really? They are at a loss? Well let me enlighten them…
Your friends are able to “afford” all of those things because 1) they spend all the money they have (instead of saving) and 2) likely spend even more than that by borrowing/using credit cards they don’t pay off each month.
So while it looks like they are doing well financially, they are really making no financial progress. None. Their net worth, which is the true measure of wealth (not spending), is going nowhere over time.
In other words, their appearances are a facade. They are actually doing poorly financially.
Ok, so that’s the beginning of what I want to share. Depressed yet? Well, there’s lots more where that came from.
Snapshot of Despair
Next the survey shares these quick facts:
- A majority (59 percent) live paycheck to paycheck
- Nearly half (44 percent) typically carry a credit card balance
- Only 38 percent have built up an emergency fund
- On average, they spend almost $500 a month on “non-essential items” (eating out, entertainment, luxury items, or vacations — not rent/mortgage or basic necessities)
Some thoughts on these:
- I am not surprised that so many live paycheck to paycheck. In fact, I’m surprised it’s this low. CNBC puts the number at 78% of Americans. Regardless of the actual percentage, it’s over half, which is a very scary story.
- Again, not surprised that so many carry a credit card balance and don’t have an emergency fund. It just shows (yet again) that a lot of people don’t have the financial basics under control. Is it any surprise then that the rest of their finances aren’t in great shape?
- Personally, $500 a month on non-essentials doesn’t sound that bad. It’s about 10% of their income, which doesn’t seem high to me, but perhaps I’m missing something.
Now here’s the “interesting” part. Based on the numbers above, Americans are in pretty bad financial shape.
But, the survey also found that…
- 59% Consider themselves savers
- 65% Are willing to sacrifice spending to save for later
These numbers do not make sense.
How can 59% to 65% of them be savers and yet 59% are living paycheck to paycheck?
It’s clear that math is not part of their fantasticalness.
By the way, I spent almost 30 years in marketing and know a fair amount about market research (we made multi-million dollar decisions based on it.) And two things are truer than the sun rising in the east:
- People almost always answer surveys in a way that reflects better on themselves than reality.
- There is a HUGE difference between what people say they will do and what they actually do.
More on these in a moment. For now, let’s move on…
Lack of Financial Plan
Here’s one about financial planning:
Despite the benefits of planning, Schwab’s survey shows that only 28 percent of Americans have a financial plan in writing. And among those without one, nearly half (46 percent) say it’s because they don’t think they have enough money to merit a formal plan, 18 percent say it’s too complicated, and 13 percent say they don’t have enough time to develop one.
Ok…so?
Not many people have a written financial plan. What’s the point?
I never had a written financial plan and things turned out ok for me. Sure, I understand if you write things down you have a better chance of achieving them, but the cynic in me can’t help but think Schwab is pushing financial planning services with a vested interest.
Or maybe I’m just a jaded old man. Tell me what you think in the comments below.
What’s it Take to be Wealthy?
Next we enter the part where Americans weigh in on their perceptions of wealth. We’ll begin with this one:
According to the survey, Americans believe it takes an average $2.3 million in personal net worth to be considered “wealthy.” That’s more than 20 times the actual median net worth of U.S. households, according to the Federal Reserve’s Survey of Consumer Finances released in 2017.
Interesting. Obviously they are using a set number to determine wealth versus a relative number because no matter what age group you look at a net worth of $2.3 million puts you ahead of at least 90% of your age group (using this calculator). For younger ages it’s usually 98-99% and not until 45-49 does it drop to 95%. In other words, $2.3 million puts you well, well ahead of the vast majority of Americans.
What’s average? Here are the percentiles. At 50% the net worth is just under $100k. Yikes!!!
And then, we enter the financial Twilight Zone. Consider this:
More than half of Americans are optimistic that they will be wealthy at some point in their lives, and two in five believe they will achieve that goal within a decade. Eight percent say they already consider themselves wealthy, although their numerical definition of wealth is lower—they believe they achieved wealth at almost $700,000 in net worth.
You have to love the optimism of Americans — despite the fact that it’s based on nothing to do with reality.
A few things here:
- If it takes $2.3 million to be wealthy, half think they’ll get there, and only 5% ever get there, there are a whole lot of people who are going to be disappointed. In fact, the odds are that the vast majority of them will get nowhere near $2.3 million. Only a bit over 10% of all Americans even get to $1 million. And yet over 50% think they will get over twice that amount. Again, math is not part of their fantasticalness.
- And 40% think they’ll get there in less than 10 years. Wow.
- The 8% who say they are already wealthy at $700k are a bit more realistic. At least they are already well above the pack (better off than 85% or so of the population). That said, I don’t see $700k as being overly wealthy except in relative terms. From an absolute number it’s not impressive. (At 4% withdrawal rate $700k gets you $28k per year.) It could be a solid part of early retirement is combined with a decent side hustle, but alone it’s not enough to live on except for those who practice lean FIRE.
To take this a bit further, 60% say they are optimistic they will be wealthy some day or say they already are. Here’s how the percentages break down:
- Already consider self wealthy 8%
- Within a year 7%
- Within 5 years 17%
- Within 10 years 20%
- Within 25 years 8%
If wealth is defined as $2.3 million, the facts say that 95% of these people are going to be extremely disappointed.
Even if $700k makes you wealthy, 85% are going to be disappointed.
Wealth is More than Money
The above said, most think that being wealthy is more than just having a lot of money:
Despite the high dollar amounts Americans use to define wealth, when it comes to feeling personally wealthy, 72 percent say it isn’t about a dollar amount at all, but rather the way they live their lives.
I can’t disagree with this. As we’ve discussed, being rich/wealthy is made up by things way more important than money.
What Would You Do with $1 Million?
Finally we move on to an interesting question as follows:
When asked what they would do with a sudden $1 million windfall, more than half (54 percent) of survey respondents say they would spend it—on a house first, followed by cars and travel.
In addition, they say they would use the funds to pay down debt (28 percent), invest (23 percent) and save (21 percent). In comparison to other generations, Gen Z respondents were the most likely to say they would save at least a portion (37 percent).
This is where we go back to my experience with market research.
People say they would spend $1 million in ways that appear to be wise. But is this what we actually see?
The two instances I can think of when people come into an unexpected large amount of money are inheritances and winning the lottery.
The numbers show that 70% of people lose all of big windfalls. (Here’s a whole guide on financial windfalls if you’re interested in the subject.) A summary:
There are so many easy ways to overspend, but, according to financial psychologists, it’s even easier if you’re spending an unexpected windfall. Seven in 10 people who suddenly receive a large sum of money like an employee bonus, lottery winnings, or an inheritance will lose it all within just a few years.
Why? “The way we label money has everything to do with how we spend it,” said psychologist and behavioral finance expert Daniel Crosby, Ph.D. In behavioral finance circles, there’s a theory known as mental accounting, which interprets the irrational ways in which people categorize and spend their funds.
According to the notion, we’re more frugal with funds earmarked as important—like those saved for a child’s education, for example—and more extravagant with unexpectedly found money—like a substantially sized tax return. “Since an inheritance is typically not gained very effortfully, it is typically spent more loosely,” said Crosby.
I searched around a bit to see how valid the 70% number is and I’d probably call it a “ballpark” estimate. That said, even if the number is only 50%, that’s still half the people who would simply blow it versus what they say they would do with it.
In other words, what people say would happen is not backed up by the numbers of what actually happens.
Sure, some would spend it responsibly. But at least half would not. They would live it up in some way for a time and then find themselves back where they started (or in some cases worse off.)
In the end, these survey results are pretty discouraging, but I believe it’s better to face the facts and work with them rather than to run and hide.
Plus this is one reason I write and encourage others the way I do. I hope that my words have an impact on at least a few people and help them move from the dismal averages to a life of financial independence and abundance.
Anyway, I’d love your thoughts on the above. Do you see anything I missed or have a different take on the numbers?
P.S. After I wrote this post I found a piece on just how many older people are employed in America. The highlights:
Retirement savings challenges – as life expectancies increase – are one reason Americans might be opting to stay in the labor force.
According to a report from the Government Accountability Office (GAO), nearly 30 percent of people over the age of 55 have no retirement savings and no pension plan. Meanwhile, the personal savings rate has declined from 14.2 percent in 1975 to 6.8 percent in 2018.
Insufficient savings, combined with low wage growth – which the GAO says remains near 1970 levels – rising health care costs and longer life expectancies are creating trouble for many American workers hoping for full retirement.
Ugh.
Thanks for sharing this information with us. As always, you have an interesting way of teaching us important facts —-
Sad state of affairs for many Americans:
Quick question, what are they going to do? They can’t “WORK” forever!
Great article. Just re this figure of 70% who lose money after a windfall, have you followed that up with any direct research? Seems fake news to me.
Are you asking if I’ve done any direct research (separate from the link I use as a source)? If so, no, I don’t do original research.
Do you have some information to the contrary?
I don’t have any numbers, but I’ve sure read enough stories of people who win their Dream House, and then try to keep it even though their income is nowhere near enough to be able to afford it, so within a couple years they lose the house and find themselves deeper in debt. I could see the same thing happening with people who get an unexpected million, buy a big house, car, whatever, and drive themselves into a financial hole.
I imagine it is accurate based on the fact those who recieve a windfall have not been taught how to keep one. If you don’t have savings to start with nor the mindset of saving. You are less likely to keep it… Most lottery winners loss all their winnings.
It is clear that most people are incompetent with money in all the ways the post excellently outlines. The Schwab survey is one of many that tell the same story as other hard-data research.
As such, the people who come into windfalls are certainly, on average, incompetent as well, which means it is virtually a statistical certainty that their windfalls will be whittled away and/or squandered.
The empirical and anecdotal data we all have suggests it but the math about the general population makes it virtually certain on average (of course – there are exceptions).
Here’s another one you may have seen: most Americans couldn’t afford a surprise $400 repair bill.
https://www.barrons.com/articles/americans-cant-afford-a-400-surprise-expense-or-can-they-51564228801
Saw this awhile ago. Similar to what you’re sharing.
Yep. Ugh.
The spending of an unexpected windfall does not shock me. Although money is money, it is interesting that money we actually trade time for is spent more carefully than the same amount of money if we are just given it. It starts at an early age. My daughter will quickly spend $20 if I give it to her but if it is money from her allowance she is far more careful about using it.
Social media does indeed create a facade of wealth. I tell my daughter just because someone is living in a beautiful home and drives a fancy car does not mean they are wealthy as it could all be a highly leveraged lifestyle funded with debt. And the fact that some people on Instagram are going as far as not even owning the things they brag on social media but rather doing photoshoots with rented items only heightens this false wealth feeling.
Great article! I am regular shopper at a national discount grocery chain that begins with an “A”. I can t help but notice (at least at the location that I frequent) how many high end rides there are in the parking lot…..Lexus, BMW, Cadillac, Lincoln, Infinity, even Porsche.
This tells me that either those owners desire to spend their money on cars and save on food, or that they have spent so much of their income on those rides that they cannot afford to shop for groceries anywhere else. At times I have tried to guess or see which owners who are in the store will go to which car when they are finished shopping. My guess is based on how they are dressed, whom is accompanying them, and the like. But that is always a random toss up. I have seen several shoppers who looked down on their luck (based on how they were dressed or kept or both) get into rides that were easily worth 50k or more.
I guess the moral here is that, expensive cars can be acquired pretty easily even if you don’t have the obvious financial means to do so, and the old saying that “you cannot judge a book by its cover” is still true.
As one of the shoppers who frequent the “A” grocery store and also drive a Mercedes I can tell you I base most purchasing decisions on value and convenience. I find a great deal of value at that store (although not all my shopping is done there) and it is the closest store to my home. My car is a highly rated entry level Benz I bought with cash used as it was a lease turn in.
In reference to what people wear sometimes I am coming from work and wearing a suit and sometimes I am out running errands in a t shirt and gym shorts.
I agree expensive cars can be acquired easily and many people unfortunately lease. But not all consumers are created equal.
I wonder what you would think of me if you saw me dressed both ways!
Middle Aged Investory,
My vocation regularly brings me in touch with a wide range of wealthy individuals, including both colleagues and clients. I also own a couple of homes and rental income properties in extremely affluent areas. Which is all to say that I’m afforded a nice perch from which to observe the wealthy, including how they made it and how they spend it.
Often what I have found is that most wealthy individuals do not go out of their way to broadcast it to the general public, they only reveal themselves among others of their kind, though there are always exceptions to every rule. Similarly, I’ve found that you simply cannot judge a book by its cover. The type of vehicle driven is one of the lowest correlations to wealth – there really is just no way to tell. My one exception to that rule is that when you see a little old lady pull up in a 25 year old MB wagon, without a scratch on it, virtually guarantied you are looking at considerable old money.
Until you start talking to someone, you can’t tell. The BMW they’re driving could be leased, the home they live in could be rented, the stylish clothes they are wearing, the extravagant vacations taken, all could be on credit.
I drive a German luxury brand and yes, I can be found at stores you might not expect to find luxury cars at. And on weekends, I look more like I’m the maintenance man than the lord of the manor. So, I’m probably one of those blokes you stalked out to the parking lot thinking surely I would be driving an old beater pick-up truck rather than loading lumber into a luxury SUV. But here’s the rub – that vehicle is 10 years old, and I bought it used at 3 years old, with hard cold cash. And I could buy a dozen of those cars or a Ferrari or a Bentley, or whatever, brand new, with cash, without breaking into a sweat, if that’s really what would make me happy.
You’d never be able to guess that unless (1) You encountered me in my fancy business suit and tie, which I try to avoid wearing as much as possible, or (2) You saw me coming out of one of my million dollar homes (though you might mistake me for the landscaper), (3) You got to know me and little bits of info started to add up, or (4) You got a look at my bank account and investments.
When it comes to wealth, I know people who go out of their way to hide it, and I know people who go out of their way to flaunt it. Same in reverse when it comes to lack of wealth. So, you really just cannot tell without the trained eye of a money detective 🙂
Great post! I really liked the link to find out where you are in your age group. I’m happy where I am but Wouldn’t mind being even higher.
I quit Facebook and all social media except Linkedin over a year ago. I don’t miss it at all, and yes it was either me bragging about what I was doing or being jealous of what others were doing. Maybe jealous is too strong perhaps envious. Regardless it wasn’t healthy so I quit and it’s awesome! The only time I wanted to go back was to share pictures of an awesome trip I was on. In other words brag. So I didn’t and it was also a good lesson.
I’ll admit I do wonder all the time how the heck my neighbors afford their cars and houses. Some must make a lot of money or they made more money earlier. I’ve always done well but the progress has truly been exponential so very high income and high net worth. There is a slight imbalance. And of course many must be way over leveraged.
It is sad how bad the median numbers are. I’ve seen first hand what an unprepared retirement looks like and it’s sad!
Thank you for sharing this information with your touch included. I have re-read this post several times and return to the same conclusion. Like beauty, wealth is in the eye of the beholder. Statistics often only serve those who develop them to make a point in their venue. Enough is said about lack of good financial practices, however few practice what they preach. It took me years to overcome my own stupidity on financial matters.
Since a young age I’ve always been fascinated by studies and facts regarding America’s wealth – all of Tom Stanley’s books were simply studies and reports on habits, net worth etc. Another good book I found was “The Overspent American”. It validates everything in this article (or vice versatile) -written 10 years ago. My experiences are similar.
I had coffee with a very close friend of mine this past week – think little brother close. He complained about how his wife spent money and wanted to join the country club – etc. Life looks good on Instagram. We finished and he said “ wanna go test drive a car ?”
We test drove a $100k BMW X7 – after driving over in his current X-5. I was complaining earlier about being forced by tax laws to replace my business vehicle a 2015 Toyota Tundra – $38k – and how expensive it was. Soooooo yes.
I am fortunate personally to get great joy out of cheaper things. I ride bicycles and work out for fun. I love my 2 businesses and enjoy seeing my net worth grow. I enjoy geeking out weekly with cash flow pro fornas and looking for real estate.
I will “splurge” on a business trip to Toronto next week by getting a upgraded room – I like to have a couch. My son and I will go see the Braves play the Dodgers and after much deliberation(painful) – we are going to sit 2 rows over the dugout.
I probably spent $500 of time debating the $200 ticket upgrade. But it’s fun and frankly I can afford it.
Forever grateful for these forums – reports/books – and podcasts that have kept me on-point since I joined the workforce 30 years ago.
I doubt none of this information and frankly I feel almost-arrogant when I pull up next to a BMW in my 5 year old pickup truck. That’s probably a character defect of mine.
Great posts all
Mmmm.
“Big hat, no cattle.”
So I am going to take a guess on the disconnect between the optimism and reality is the effects of inflation. People have trouble distinguishing between real and nominal wealth measured by purchasing power. Indeed, I would imagine that many people who are at $800K or whatever will get to $2.3 million quite easily in the next 20-30 years if they are able to live long enough. However by that time the number needed to feel wealthy will likely be $12M or so and the top 1% will be at $50M. Those all sound like big numbers now but when college tuition is $250K a year then it is clear that purchasing power adjusts accordingly.
Human nature seems to offer a more plausible explanation than inflation for the disconnect in what people say and do with money. Something I would call “intelligent instinct.”
“WORDS ARE CHEAP” – the intelligent part
Self delusion – People generally want to believe they are doing well and things are going to work out for them.
Self promotion – People generally don’t want to say they are too stupid to be able to manage their money, or that they lack the self control to be able to save, or that they are too spoiled to make the sacrifices to get them into a comfortable retirement. So they give the answer that reflects best on them.
Namely, people are smart enough to know what the answer should be so they lie to themselves and to others because it is in their interest to do so. For some it may be conscious and for others it may be subconscious, but some part of their intelligence knows that for social and societal reasons, certain answers are more desirable.
“ACTIONS TELL THE TRUTH” – The instinct part
Self preservation – Emotions are far more powerful in decision making than facts or logic. Emotions are not intelligence, they are reactions and feelings. Your thinking brain is not involved. Fear of missing out on good times now. Jealousy over what others have that you believe you deserve as well. Emotions do not factor in what you should do or what you told someone you would do. Instinct is fast, thinking is slow. Instinct was an important every day aspect of a previous time when scarcity and the fight for survival was the norm for life on the savanna. These emotional instincts no longer serve us well in today’s market economy, but they are still there and still powerful.
Social proof – Humans are social herd animals who determine what to do based on what other people do. This instinct also served us well in a much less informed world. If you wanted to survive you don’t have time to figure out how. Follow the actions of those that have survived. Go your own way and die. When it comes to survival, the herd had to be right. That’s why there was a herd, they survived. When it comes to financial decisions in a market economy, especially one that offers, debt, government programs to help people, etc, the herd gets this mostly wrong because failure doesn’t result in death or immediate catastrophic results. In fact, irresponsible herd behavior makes the herd appear even more successful. The herd mentality is still strong and instinctively we know the herd has to be right. Just look at how well the herd is doing with their cars, houses, boats, and vacations. This instinct also is no longer reliable, but its power is strong!
You’ve heard follow the money? If you want to know why people do what they do … follow the herd.
Intelligent: They can answer what they should do
Instinct: But what they actually will do is follow the herd.
To do differently is NOT NATURAL!
Knowledge and intelligence is necessary but not enough to overcome nature. It also requires Belief, Choice, Will Power, Future Orientation, Self Control, Self Denial, and Vigilance (because the instinct never goes away).
It’s not surprising that so few get there. Human nature is powerful. Overcoming it is exceedingly difficult. I will be surprised if more than a remnant ever do.
Some very interesting and pity observations in here – thank you for writing this (or copying/pasting it from something else you wrote!).
Thanks biggrey.
The social proof concept is one of the 7 topics discussed in Robert Cialdini’s book “Influence” which has many profound insights into human behavior. However the text above was not copied from that source or any other. If it was copied I would have cited a source.
The analysis above is my attempt to understand what people do based on things I have read, learned, and observed. It’s an opinion and not scientific. But it seems to fit the circumstances as I understand them.
I’d say you’re spot on; this is an island of the exceptional few. Even then, I imagine distortions abound. What people really think of their spouses or 30 years grinding away, etc., will rarely be seen at this or any other altitude. No one seems to like the cold hard truth but me, a few others, and Socrates. Few people like us beyond the veneer, and the herd made HIM drink hemlock.
I am often shocked at peoples inability to do basic (back of and envelope) cost accounting. I know many people that consider the cost of gas the only expense regarding taking a driving trip or commuting. These are generally smart people. I think people see what they want to see.
I believe the statistics on windfall spending. Many years ago, before lotteries offered the option of lump sum payments, winners would cash out the remaining value of the yearly payments for pennies on the dollar.
Thanks for sharing the dismal news.
Regarding budgets, I recall most MI interviews stating that no written budgets were used. Most low single digit millionaires (including self) have a self-regulating, point-of-purchase way of spending control. This combined with a frugal nature keeps folks like us from getting in the Jone race. Budgets can be a tool to get you in that mind set but IMO, to realize single digit multi-millionaire NW requires development of strong, consistent, financial habits. Just like reaching physical fitness by consistently eating right and exercising regularly, financial fitness is the same. A written meal and exercise plan is a fine but you won’t get results unless you work it over the long haul.
I’ve always tried to look at budgets a little differently. I never set a firm budget but I do track expenses and at the end of each month I look at some of the larger spending categories and if I begin to see a trend I don’t like, I may try and reel in some of that particular spending. I guess I’m more focused on how our money is actually being spent than I am trying to maintain a fixed budget. As long as Net Worth is growing and I’m meeting our savings goals, I just don’t feel the need to set an arbitrary budget that we need to try and achieve.
Well, there’s always room for improvement. My lower self thinks a great number, perhaps millions, need to reassess their feelings about death. Nevertheless, I am recently out of the woods, credit-wise. Nothing left but the cost of living, then attacking my student loans while paying down the mortgage. My cumulative interest-bearing savings and investment pathways are currently set at 36%, age 51, based on 36k gross. Dismal by M lights, sure, but to me it’s a healthy start. I plan on going full ape, up to 50%, the sky’s the limit, but it’s a balancing act . . . the budget has always been pen and paper. Ever-changing buffers and margins, on the move and growing. I’ve become optimistic; annihilating the loans by age 67 will be crucial to meeting the future budget, based upon SS, a modestly low nest egg, but then low food costs and no expensive habits, like travel, or eating out. I keep it tight and local. More bicycle than car, perhaps, sans moustache. Still a realist. If at all goes south, whatever; life isn’t precious. It’s a game. North of hell, south of heaven . . . I’ll be looking for more of that mountain air. And from this house, feet first.
MI – 10 and MI – 18 are my boys most recently. How to make excellent lemonade and manage it like a pro. I too live in a super hot, crazy real estate market (WA coast). Didn’t think I’d learn much from an alpha deca, but I was wrong; my mortgage strategy changed 12 hours ago. Points and numbers, pondered, analyzed, set. Game on, kids. Be encouraged.
I agree with acquaintances sharing their spending on fancy vacations, cars and homes. However, sharing information on their savings/investment habits is more personal and could be perceived as bragging. I wouldn’t be sharing this information with others.
Thanks for sharing the survey and your great commentary. We have seen many of these behaviours in real life amongst our friends and colleagues.
I retired early a few years ago, we have been financially fortunate ( good careers and stock options that paid out), but have always lived below our means. One of my mentors early in my career drilled home the point that it’s your burn rate that you need to really track, don’t spend more than you earn.
Too many of my friends got caught up in competition with their friends and over spent throughout their career, some regret it as they approach retirement, others still believe they will have some form of windfall ( inheritance, lottery, new job etc.) that will allow them to retire in a financially sound manner. Others have given up and hope that the government safety net will support them.
I have concluded that most people don’t get good basic financial education at a young age, which hurts them as they develop terrible saving/spending habits. I have had numerous conversations with friends when they want to discuss financial issues, but agree with one of the other comments above that people do not generally want to discuss financial matters with peers or colleagues, it is a deeply personal issue for most.
More people need to follow sites such as Esimoney to increase financial literacy.
Keep up the good work!
Yeah . . . out of 18 coworkers, I talk with 3, intimately, profoundly, about significant financial issues. One is reasonably set with a moderate case of affluenza (3-story house for one, semi-retired, basically collecting SS with a PT job supplement, nest egg unknown), the other two still in their twenties, eyes partially open, ready for nothing and everything. I speak freely, not always uncritically. No one likes to be lectured, but the exchange has been positive, wheels slightly turning. “Nobody knows where the human race is going. The highest wisdom, then, is to know where you are going.” Thanks Leo . . . tip of the hat to Socrates.
I’m amazed at how many family and friends we grew up with who have poor to mediocre financial literacy and habits.
Overspending and poor savings and investing habits run rampant in our culture. As Zig Ziglar used to say, Life is so much easier if you are hard on yourself! The Ramsey folks say that virtually anyone who works his plan to become debt free and saves and invests at least 15 percent becomes a millionaire, the average in only 17 years!
Unlike the new survey you mention, we do not consider ourselves wealthy with a $2 million plus net worth, but with no debt we certainly feel comfortable, can be generous, and do what we want. Ramsey’s Baby Step 7 is a great place to be!
yes social media influences travel habits
I never thought about how much social media could be impacting America’s wallets, but it makes sense!
Fascinating insight into surveying people and how they respond vs. how they actually act.
I agree with the Social Media aspect. Have a friend that travels a lot for fun and work. Her birthday celebration was at a very expensive restaurant with me struggling on my decision. Yes, I really wanted to be there but I knew my dinner bill for a Weds night would be at least $100 at that restaurant. I had to keep reminding myself of my goals and the fact my friend refinances her house every few years to purchase a new car. Made it so much easier when I keep reminding myself of that.
As for windfall, I know what I would do because it happened to me in my mid-20’s. I received $100K which was a huge amount of money for me at the time. I took a small amount of money and purchased a bottle of perfume and a box of Crane notes that were luxuries at the time for less than $50. All of the rest of the money was invested in a low cost Index fund. I only pulled out money to pay for what I needed to complete my public state college education with a very employable degree. Most of the money stayed and grew over the years. One has got to keep their eye on their prize goal.
I work for a very large retail bank and I didn’t need to read this article to know the average American is in financial decline. Most customers who sit across from me live paycheck to paycheck. Yes, I agree that social media has had an impact on our spending habits, but what about debit cards? I believe they have single handily contributed to ones ability to just swipe and buy without knowing or caring about the consequences. One can opt in for a declined transaction, but they don’t want to.
Yes, banks charge outrages fees, but trust me, there are a certain group of Americans who could care less that their $5 transaction cost them an additional $35 because they didn’t have enough money in their account to pay for the $5 purchase in the first place; this is how they manage their finances. From where I sit, this mentality doesn’t apply to any particular generation. Sad state we are in.
Personally, the more and more I hear from people about their personal finances, the more it resonates with the stats. But I’m still shocked a bit. When I hear people in their 50 or 60s who have had professional jobs, lived a high middle income class say they don’t have enough money to retire…. I can understand when people have been low income earners, but if households with two professional high income jobs??? How???
Cost of living, timing, and location I believe, but those margins have become tighter everywhere. About 12 years ago you could buy a sketchy 2 BR in gangland (outlying Seattle region) for about 600k. Four years ago, the economy still anemic in wake of the Great Recession, you could buy a nice 2 BR stick-built or a condo in a sleepy, non-California beach community three hours outside of Seattle for 100k or less. My broker-trained girlfriend and I fought like savages with lenders and realtors and nailed one down for 68k. Didn’t even have to paint, though we did; we replaced the hot water heater. That’s it. Today, that sketchy 2 BR south of paradise is maybe 1.5 million? Hard to say; the market kind of peaked amid the insanity, but the new normal is still WAY up there, halfway to Tokyo. Our 2 BR, meanwhile, could probably be had for 180k, looking at the comps. At 136k (doubled) we could sell it one day. But if we sold, where could we capitalize on the exchange? Rural Nebraska? The Californians are here. The Texans are coming. Ex-Seattleites are snatching up everything else, while the homeless have moved into the dunes. This is the new story of the West.
Interesting, funny, yet sad…..all of the above
Full disclosure: it took us a year of heavy hunting. The purchase price was even lower; 64k. I had to have the down payment financed at 4k, a first-time homebuyer gambit. I had some cash, just not enough, also saddle bagged with credit cards and personal loans. Nevertheless, with my income at the time, considering the last of the great opportunities in WA, it was time to strike, or rent forever. Gf thought we’d be too vulnerable to rent increases in the future, that despite our comfortable renting situation at the time. So we’re both reasonably content at the outcome, but the changes are coming. We’ll see how that plays out. No getting around it, millions of boomers and Xers beyond us are set for a hard fall, barring some miracle. The message is out there, today’s youngsters could be wiser, financially, but then their suicide rates have escalated. You do the math. They’re pretty good at that (STEM bots), but perhaps see a reality south of great light, happiness, and sunny future outcomes.
What you say about social media is true and I say that having built a multi million $ biz off of it. Social media is a mixed bag and unfortunately people see it as 100% truth, when a lot of it is calculated to portray a lifestyle, and feed your desire for a brand or product. Key here is selling people on the fear of missing out. Most folks do want what others have, it’s ingrained as a society. We’ve sold people the ultimate American Dream but haven’t given them the tools to succeed. Instagram, Fb, Twitter are a more immediate way of burning these images of desire into the conscious. You don’t even have to read an ad if the image is well done to reinforce your want/desire for the product or service.
People want everything now. Easy credit and the lack of self discipline is a terrible combo for many Americans. I have always said we don’t concentrate on financial education like we should in high school, and maybe even sooner. Even small children can be taught to save, but won’t be as long as their parents haven’t been taught it. This is partly why people don’t know how to handle windfalls.
I have been a late bloomer when it comes to success, I def had my struggles financially earlier in life. Some of that was due to my poor choices in relationships. Once I concentrated on believing in myself first and focusing on what people really want, things worked out. I am so damn grateful for where I am now, I do think all the struggles early on made me appreciate it so much more.
Good article, but sad when you think about the impact of this to all of us as a society.
None of these findings are surprising, what is surprising is the failure to acknowledge one of the key aspects prohibiting typical Americans from creating wealth — wage stagnation. For several decades worker pay has failed to keep up with the impacts of inflation, the rising cost of healthcare, recent recessions, and other factors. Wage inequality is a clear and present danger across the country, and the U.S. needs sound policies to help boost wages.
From Pew Research Center
“A recent Pew Research Center report, based on an analysis of household income data from the Census Bureau, found that in 2016 Americans in the top tenth of the income distribution earned 8.7 times as much as Americans in the bottom tenth ($109,578 versus $12,523). In 1970, when the analysis period began, the top tenth earned 6.9 times as much as the bottom tenth ($63,512 versus $9,212).”
https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/
From Economic Policy Institute
“CEO compensation has grown 940% since 1978 while typical worker compensation has risen only 12% during the same period.”
https://www.epi.org/publication/ceo-compensation-2018/
Without question we need to do better at educating our young (and old) on how to manage their money, how to create savings and build wealth, but I worry we’ve found it easier to lay all the blame on the person for their failure to save because they bought that latte, or noshed on some avocado toast. We certainly have a lot of fundamental problems that need solutions but at the end of the day, companies need to pay workers more, especially in their lower ranks.
It’s amazing how optimistic Americans are about their financial future, despite evidence to the contrary. I wonder if that is why they are so careless about saving for the future: they just assume that all will be ok.