The FED’s Report on the Economic Well-Being of US Householdsin 2014 found–
“Forty-seven percent of respondents say they either could not cover an emergency expense costing $400, or would cover it by selling something or borrowing money.”
That is almost half the population! My H and I were blown away. Yet I have family members in this situation. We also saw a story on PBS, reporting on this and there was a article in the WSJ. The PBS broadcast interviewed a “well-off” writer living in Long Island who fell into this category. He was living very well, but was spending all the money that came in and realized, when he heard the report, that he was one of the 47%.
I cannot imagine living like this. And, as the PBS show showed, thiese are not just our poor. And $400 is not a lot of money for this day and age. What about $1000? How much would this add to the percentage?
It is suggested that you have at least 6 months of living expenses in liquid assets to be safe. That is a far cry from $400. Okay, respondents said selling something. Do they mean selling securities ( mostly liquid) or selling assets such as car and furniture.
I’m not sure I have a question. Maybe, do you believe you have enough liquidity to cover a few months, or more, if you needed it?
The other reason for the thread is just discussion. Do you find this finding astounding?
Although I certainly have an opinion on this, I acknowledge that spending is a personal choice and it is none of my business what anyone else chooses to do with their money. Do I sympathize however? No.
Choices are being made and there seems to be a growing movement of middle class entitlement that supports bad financial decisions. People feel like they “deserve” or “need” a certain lifestyle because they are “middle class.” The same people living paycheck to paycheck on a middle class income have absolutely no sympathy for those living at poverty level. Poor families only “deserve” crappy housing in poor school districts, but the middle class are special snowflakes and “need” to own a home in the suburbs. Oh the struggle…
I had a good friend in high school and college whose parents lived like this. Both parents were college grads but the dad had left a well-paying career partly due to a recession and partly due to drinking. The mom was a stay at home parent even when the kids were in high school. I remember my friend would say that the family could never go visit their grandparents who lived two states away because their car might not make it that far.
Seems to me that the author is likely lacking in a good education in financial matters. It apprears that he is living above his means.
His comment about not knowing if he could pay for his daughter’s wedding suggests to me that he is financially out of touch. Weddings cost thousands of dollars and his comment, “it all depended on whether something good happened.” suggests that he does not have a real understanding of the costs involved. Windfalls of several thousand dollars are rare. If he can’t scrape of $400, then he clearly can’t pay for a wedding.
scout59: Thanks for posting this. I thought it an excellent companion piece to the article about Luck in the same issue.
Part of the author’s economic difficulties seemed to be related to real estate losses. In retrospect, he may have made bad decisions. At the time he was attempting to do what the experts recommended and what worked out for a whole lot of folks: buying in NYC and selling at a huge profit to move to an outlying area. Some folks did this and were very lucky. They ended up rich. He didn’t have such luck.
Some people had a whole lot of luck with real estate, many in our parents’ generation, for example. Some people in my generation have had very good luck and some very bad luck. Some of the best off financially had the very best luck.
In 2009/09, I was selling a house in an outlying area. A young couple I knew were visiting and she was amazed how inexpensive the property was by NYC standards. They had just bought a small condo. She was all excited about the idea of selling the condo to buy our property. Her condo wasn’t worth what they had paid. Fortunately they weren’t in a financial position to hold two mortgages, or they may have ended up like the author.
I liked the article. My H and I went through an extremely rough financial patch a few years ago due to job loss and poor choices and we nearly lost our house. It cured me of wanting to keep up with the Joneses for good, and made me appreciate just being able to pay all our bills and go away for a long weekend once in a while. We learned a lot and are much more appreciative of what we have now.
Don’t want to be judgmental. But I have strongly encouraged D to not only fund her 401k at work ( which she does), but to also make sure she has an emergency fund.
It is good decision making to fund a 401k and keep an emergency fund. It is luck to have enough money left over out of your paycheck to be able to do that. There were definitely times in our lives we didn’t have that much money left over. However, we were very very lucky my husband ended up with a nice defined guaranteed pension. We were also very very lucky to always have a familial financial safety net.
My father used to tell me, over and over, we have a whole lot less control over our lives than we imagine. He’s been dead more than 25 years, but I’ve been thinking about the importance of that concept a whole lot lately.
People make decisions based upon the information available to them at the time. I have spent money that in hindsight I wish I hadn’t spent - but I felt I had to as a parent. I will probably work until I die as a result. Even when you plan, life has a way of throwing you a curve ball from time to time and sometimes it’s very difficult to recover from that.
I was glad of his honesty in writing the article, but dismayed at his approach - especially with regards to his wife. Keeping her in the dark? Telling her she did not need to get a job - any job - to help the family survive? She had to sign the tax returns, didn’t she see the income number?
Some bad choices, some unfortunate circumstances - coops and real estate in NYC can be very difficult, especially when prices crash.
Yet I had only some sympathy. Perhaps because I have been a working mom throughout my kids lives and did not have the luxury of staying home (although I did work part time for many years, and for that I am incredibly thankful). Perhaps because I did not send my kids to their top choice full pay colleges (not Stanford), but to the more affordable options where they still got a very good education. Perhaps because both my DH and I stayed in jobs that were not always our dream jobs, but did not have something better.
What do you think of the definition of middle class life in the article:
Of course, it doesn’t say that the college education would be at the full pay school of each kid’s choice or that the vacation would be to Disney not to a cabin in the woods.
It is incredibly scary, however, that almost 50% of families do not have enough savings to make a $400 repair. That leads to charging it on a card, which leads to more credit card debt. Certainly, the current economic stagnation doesn’t help. When was the last time most people, whether in low level jobs or in professional ones, got a real raise? The proliferation of low wage jobs, the lack of pensions and the incredibly high cost of college and medical care make it difficult to accumulate savings. In the NE the cost of living in a decent area with good schools is very high. That is why so many, even if they have the money to pay for emergencies, feel like they are not living a middle class life - it is not possible to save enough for retirement security and still enjoy life.
One of my friends left her attorney husband, while the kids were in middle school, when it was revealed a series of unlucky real estate investments had left them bankrupt. He had kept them secret. However, she had never questioned their standard of living: staying home with her kids, with help inside and outside the house and lots of nice travel. I sympathized with her indignation and sense of betrayal, but at the time my husband commented that she would have been fine with the secrecy if it had all worked out as the ex had anticipated. She would have been delighted with that outcome.
Yes, it might be a bit hard to be sympathetic, because he dug his own grave, and put himself right in there. I do, however, appreciate his honesty, and it sounds like they have seen the light and live reasonably now. Hindsight is 20/20, and it sounds like he was always expecting a big payoff in the future. He surely could have benefitted from listening to Dave Ramsey a LONG time ago!
I think so many people are in the same boat now, while few have probably made as many costly, frivolous mistakes. But people live above their means, life keeps getting more expensive, everyone needs the latest electronic gadgets, and the salaries just aren’t keeping up. I think the financial frustration of so many people being in debt, and not being able to get ahead is the explanation for the popularity of candidates with the, “Your problems are someone else’s fault, and I’m going to fix everything for you,” theme.
We have been unemployed, with a baby and a toddler, with little money and in a very desperate situation. Fortunately, we never ran up our credit, but lived sparsely and my husband parked cars for income. That desperate feeling that the little we’ve saved is all we will ever save, the jealousy watching someone buy a simple item just because they wanted to, the depression…I will never forget. It’s a terrible experience, but I wouldn’t take it away for the world, because I know that we could deal with this again if we had to. Though no spending on wine or coffee would be awful!
Does society take the same approach with airline disasters? Does so society say “So many people died. Let’s not look into what happened.” No, we take exactly the opposite approach. We have regulatory agencies look into detail what happened, why it happened, and how to avoid it in the future. Airline travel is much safer as a result.
My wife and I take the same approach with our kids. When some misfortune happens to someone (whether it is someone we know or someone we hear about), we used to tell them first and foremost be kind to the person (this is ingrained in them now so we no longer have to). But an important follow up is to discuss with our kids how that person could have avoided that misfortune if it was possible to do so. And very often it is possible to do so.
I admire the author for putting a human face on all the statistics (…and those statistics are kind of grim…) and for completely owning the situation he finds himself in. He admits it that he is a “financial ignoramus”; he agrees it was wrong to keep information from his wife; he seems to feel regret and sadness and yes, shame, over his situation.
I probably have more sympathy for him because I lived a similar story as a child. My family appeared successful on the outside, but inside, there were constant fights about money. We weren’t poor but we sure weren’t what we appeared to be. That experience has colored my adult life in that I am a pathological saver…which isn’t a bad thing, necessarily, but there are times when I wish that wasn’t my worldview. I often feel like I can’t relax - that it must always be save, save save and work, work, work.
Anyway - your father was a smart man, alh. We often don’t have as much control over our lives as we’d like to think we do.
“My wife and I take the same approach with our kids. When some misfortune happens to someone (whether it is someone we know or someone we hear about), we used to tell them first and foremost be kind to the person (this is ingrained in them now so we no longer have to). But an important follow up is to discuss with our kids how that person could have avoided that misfortune if it was possible to do so. And very often it is possible to do so”
In theory, that seems like a rational approach. However, you need to make sure you aren’t turning it into self righteous gossip. An example, awhile ago I told someone close a very personal thing, and asked and trusted that person not to tell anyone else. Soon after, from a few things that were said, I realized that she had told her husband and her children, with the explanation that it was a learning situation, to not make that mistake in their lives. But the reality is, it was just an opportunity for gossip, and I know now not to trust her with information I don’t want repeated.