re : my post #10. D earns a very modest salary and lives in NYC. She is better off now that she is married, but is still on a tight budget.
Pay has not increased for many many years. The middle class is getting squeezed. Economic immobility is increasing in this country. It was easier for our generation to move up in economic class than it is going to be with our kids.
Corporate profits have become a larger share of the while employees receive a smaller share.
One thing that has kept our country going is the belief in the American Dream. If fewer and fewer people achieve the Dream, the belief is going to decline.
There was a story in the NYTimes that said young people living in NYC today are better educated than young people who lived in NYC 15 years ago. The young people today on average in NYC have less glamorous jobs. The jobs pay less. They make less money. That is not how are economy is supposed to work, is it?
There is a radio show on NPR called Freakonomics. Last week’s episode was interesting. The idea of everyone receiving a minimum income was brought up. This idea has been around a long time. Libertarians, economists such as Milton Friedman, and some liberal economists have liked this idea.
What is happening now is some people who work in silicon valley are talking about everybody receiving a minimum income. Many of the future technologies are going to eliminate jobs. Driverless cars may eliminate up to 3.5 million jobs. Robots are coming. Robots that can think. This is going to displace workers. Wall Street already uses algorithms to trade.
If society doesn’t change we may have more people who can’t raise $400 or a $1,000 or $2,000.
We were five days from the closing on a house we were selling in 2014 when, after several unanswered emails, I received a message from the out-of-state buyer that their financing had fallen through because “the bank wasn’t comfortable with his moving his company”. He owns his own wealth management company for high-income entrepreneurs that he claimed was wildly successful and, yet, wanted to put only 3% down. They claimed to be pre-approved at the time of deposit but then kept changing banks “to get better rates”. They were on the third bank when time ran out. Before rejecting them, the third bank was initially requiring they put $75,000 down rather than the $11,000 (3%) they had planned. They were immediately fine with coming up with $75K. To let them out of the deal and return the deposit, we required they provide us with the refusal letter from the third bank. Turns out they had a low credit score, high credit card balances, and a judgement against them. We wondered why someone would have high credit card balances if they had $75K in liquid funds. It was one lie after another to maintain the image of success and wealth, but it couldn’t stand up to the scrutiny of the bank. Why were they shopping for a home in the uppermost price range in our region? They were obviously living beyond their means.
I’ve wondered whose money that $75K would have been. Imagine turning over your money to a wealth manager who can’t obtain a mortgage?
They moved to our town and have been renting ever since. I just saw their facebook photos from their vacation in Kauai. To each his own!
Fortunately, for us, we didn’t lose any money.
I know someone who could have written this article - except they are still in full blown denial and just waiting for their ship to come in - and they are in their 60’s! Last fall they had to borrow $17k to keep themselves afloat. They were supposed to pay back the money in full by the end of January. Missed that deadline and so the lender( a relative) asked them for $500 a month until they could pay off in lump sum. They couldn’t even do that.
Their mortgage plus HEL is $4000/month and they already blew through their home equity loan (had $400k) when he lost his job and started his own company (hasn’t been successful) so even if they sold their house they won’t make any money.) She has a “fun” little business of her own but doesn’t get much income from it and I’m pretty sure she uses her income just go buy stuff for herself.
They still drive expensive leased cars - she just got a new one. She told me they got a deal and it wasn’t any more $ then last lease. I told her she could have leased a much less expensive car - like a Civic. She looked at me like I had horns.
She gets her nails done every week and has a cleaning couple one a week. They have a lawn service, They go out to dinner and to the movies every weekend. She shops at Whole Foods. The only thing they have cut back on at all is taking vacations.
She admired a pair of boots I have and the next thing I knew she went out and bought them. While they were only $285 she couldn’t afford them. When she noticed I had noticed she told me, “I needed just this kind of boot.” She has closets full of boots (and shoes and clothes.)
I am sure they are living on their credit cards because when we go out to lunch she takes our cash and puts the whole bill on her credit card.
My other friend and I have a friendly bet when they will file bankruptcy. We are the only two who know because we are the “poor” ones in our group and we think she thinks we would understand or are in the same boat (we are not.)
I would be sympathetic if they made any attempt to drastically reduce their spending but the only plan I see is trying to borrow money from relatives to sustain their lifestyle.
Most likely when they had bigger earnings they spent everything they made and didn’t save a nickel.
^That sounds like a psychological illness, @emilybee. The sad thing is that it isn’t that uncommon.
I’m sure the lending relative is regretting opening his/her wallet to help them out.
@baseball - we closed on the selling of our house about two months ago; we pre-signed all the papers ahead of time so we wouldn’t have to go to the closing. I found out a couple of days later the closing took several hours because the buyers (a young late 20s couple who are getting married next month), after they’d been approved for their mortgage, went out and opened a new line of credit so they could furnish their new home (they were coming from a one-bedroom condo). So when their mortgage company discovered this (why they didn’t discover this sooner than the day of closing boggles my mind), they had to get creative at closing. I’m guessing one of the mortgage company’s options would have been to decline the mortgage at that point, and we would have been out a buyer (although we’d had four offers on the house and could have sold easily).
I was FURIOUS that this couple made such a stupid choice and put this transaction at risk, especially given that we offered them several nice pieces of furniture that we couldn’t take with us because they wouldn’t fit in our new place. I guess they felt like they needed everything new.
And I didn’t feel bad for them in the least, when I found out a couple of weeks later that one of the hot water heaters (we had two) blew up on them two days after closing, and the home warranty policy only covered a tiny percentage of it. Somehow they managed to guilt our realtor (who’d bought them the policy) into paying the remainder of the repairs.
I’m really worried about what’s going to happen to a lot of these people when they get old and can no longer work.
We have been in this position, but thank God no longer. It was never living above our means, it was using every resource possible to educate our kids. Since my husband can’t read very well, he always understood that it would require working many more hours than most people in order to get our kids educated, so he did. But it is very, very hard to crawl out of the gutter when that’s where your family has stayed for generations. In the next few weeks we will have two with master’s degrees and one going to a nice college, but it didn’t happen without long periods of time where we robbed from Peter to pay Paul or came much closer to the edge than we would have liked. Years ago I sold my engagement ring to make sure Christmas came to our house that year. We don’t have a lot of the things that most people with our income take for granted, and our kids have no experience with vacations or travel, but they are or will be educated and will never be in the same position we were unless they make bad choices. So far, no sign of that as they are all three very hardworking and fiscally responsible. As hard as it has been, we would do nothing differently and are beyond grateful. Which is why we never envy anyone - because we never thought we would be able to get our kids to the point of being educated professionals - it’s just not a thing in our circle.
“I’m really worried about what’s going to happen to a lot of these people when they get old and can no longer work.”
I think we had a thread about what was happening to some of the broke, elderly people. It’s sad. At least for now, most have Medicare and social security income.
@doschicos, “keeping up with the Jones-itis.”
Yes, I’m sure they are.
I appreciate his honesty and hope his situation improves but I wish he had included examples from other people’s stories to round things out.
If 47% can’t come up with $400 for an emergency how did they get there? Why haven’t real wages increased since 1972? He has some startling facts in his piece but his own story is only one look at them.
One thing that wasn’t mentioned is how the standard of living has changed. We all used to have bigger families that somehow lived in smaller houses. Cable TV was a luxury and there were no bills for wifi or cell phones. I don’t want to be self righteous and say that people should forego these things because for many jobs you absolutely need at least a cell phone and probably some kind of computer and internet access at home.
People used to complain about the cost of utilities but in my finances gas and electric are less than cell phone service and internet.
“People make decisions based upon the information available to them at the time” - the hallmark is can you recover from the bad situations - be they health issues, a collapsed real estate market, a lost job. No matter how much planning you do, you can’t prepare for medical bills far in excess of the available coverage (or even the bills in line with the high deductibles of 10K in some plans), real estate that lost value, or mid-life job losses. You can minimize the effects of ‘bad’ luck but never eliminate them.
The author lived beyond his means for decades. Why is it surprising that he’s in financial straights?
“@doschicos, “keeping up with the Jones-itis.””
It’s that, @emilybee, but even more. It’s impulsiveness, lack of self control, inability to rationally adjust behavior based on past experience, a psychological need that seems to be filled by buying things even when you can’t pay for them, and more.
I’ve always thought the most important thing we can teach children is delayed gratification.
They can vote for higher Social Security and Medicare benefits, which require higher payroll taxes, which make it more difficult to the next generation to save for their own retirement, which make the next generation more likely to retire poor, so that they can vote for higher Social Security and Medicare benefits, …
@doschicos, yes. My answer was sort of in jest.
We all think it’s her but can’t understand why the H doesn’t put his foot down - at least to the extravagant spending, but maybe they are so in the hole he has stopped bothering. I’m also sure he thought his business would be more successful so why bother changing your lifestyle when things would get better. He is always telling H about some big deal he’s working on. It’s been about 8 years now - during which they used up the whole $400k home equity loan to maintain their lifestyle - but that was all gone about 2 years ago.
I’m sure I could take a hatchet to their budget and cut $1000’s but when I suggested just a few things she could cut out when she told us about the $500 monthly payment to lender, she got very defensive and told me they would get paid back in full when they could afford it!
Bravo!
When I was young, for a time our family of 6 lived in a 2-bedroom apartment. My parents and my widowed grandmother who lived with us each got a bedroom. We three kids got sleeping bags and slept between the sofas and the TV. Every time we bought groceries, my mom and older sister would go through every line item on the receipt to make sure that everything was correctly priced. I had no idea at the time how dirt poor we were.
Over the next two decades my parents became wealthy, eventually owning many rental homes in the US and overseas before selling them near retirement. But the importance of living below your means was a powerful lesson that remains with us. We children were taught to save 20% when possible, never carry a balance on our credit cards, and that loans should only be used for large purchases such as a home or business. We were encouraged to strive for merit scholarships for college, and two of us received them. I became financially independent by age 18.
Looking back I realize that we too were one step away from financial disaster when I was young. The reasons that nobody in our family is there now is due in part to things we cannot control (such as continued good health) but also in large part due to the choices they made and we continue to make on a regular basis.
What strikes me about the author of the Atlantic article is that he chose not to have a job with a regular paycheck. In my opinion, that would have greatly improved his situation. He’s stuck in a cycle of having to sell a book idea and then complete the book, but completing a book is a very difficult thing to do. So he will have, at best, a feast-or-famine existence. That creates the assumption that the “feast” status is the norm, so you live according to that income.
As I look back on my adult life, I sometimes disliked my job – and there were a few I absolutely hated – but I knew that receiving a regular paycheck was a wonderful thing. Most of us could adjust our style of living to whatever that paycheck is.
“In my house, we have learned to live a no-frills existence. We halved our mortgage payments through a loan-modification program. We drive a 1997 Toyota Avalon with 160,000 miles that I got from my father when he died. We haven’t taken a vacation in 10 years. We have no credit cards, only a debit card. We have no retirement savings, because we emptied a small 401(k) to pay for our younger daughter’s wedding. We eat out maybe once every two or three months. Though I was a film critic for many years, I seldom go to the movies now. We shop sales. We forgo house and car repairs until they are absolutely necessary. We count pennies.”
Refinancing / loan modification program - sensible.
Driving an old car - sensible.
Not taking a vacation - OK, the guy lives in the Hamptons, some of the most beautiful beaches in world are near him and it is pleasant there probably 6 months a year. How about a staycation, take a few days off, hang out at the beach with wife and grown children (they can sleep on the couch or floor if they have to) and roast some hot dogs or splurge on a basket of clams. {not trivial, almost anyone has a park or other enjoyable space near them, you do not have to fly to Hawaii and blow 10K to relax and enjoy}.
Credit cards - about time, unless you can pay it off every month, shred it.
No retirement savings, spent on a wedding. As one of my first bosses mentioned, there are plenty of good fried chicken places and plenty of nice cheap public venues with a gazebo for a wedding. Or have daughter borrow money.
Eating out - fine, learn to cook, much better tasting and more nutritious
Movies - if you can make $8 on a review, go to a morning showing …
Sales - full price is a scam, everything is always on sale, or will be … you don’t need T-shirts in February and they will be 50% off in April
Deferred maintenance - OK sometimes …
The one thing that struck me as really dumb, dumb, dumb was not paying taxes and paying penalties and interest. Borrow money at 23% from a credit card, the IRS charges more … And wifey did sign that return, did she not notice the absence of corresponding check.
Basically, the trick is to live below your means from the day you get your first paycheck until you retire. That builds up a nest egg and lets you manage your money, paying taxes on advances, etc.
I know plenty of people like this guy. Elaborate wedding? Sure. Enough money to repair the car? Nope. And these are bright people in every other way. I sat down with one friend who was about to leave her husband who has no savings whatsoever… She makes $18 an hour, thirty hours a week and wanted me to drive down to Laguna so she could scope out a beach front condo where she planned to live when she left him. Even when I brought out the calculator and went through the numbers she looked at me as if I was being “mean”. After knowing this family for over 30 years I just do not get it. They have had no catastrophic occurrence that would explain any of this. No bad investments. No illness. No bad real estate transactionsIt constantly baffles me. Mental illness? Possibly. But much of it just seems to come down to them having preconceived notions as to what someone of their status deserves.