Nearly half of Americans would have trouble finding $400 to pay for an emergency

I think the article can be summed up by this sentence:

> We have no retirement savings, because we emptied a small 401(k) to pay for our younger daughter’s wedding.

The author isn't mysteriously broke. Money is not being stolen from his account. Rather, he's spending a lot of money on things which he believes are necessities (like paying for a child's wedding), and sacrificing a lot of things which he believes is optional (like having retirement savings). Some would suggest both categorizations are wrong.

Also:

> we believed [our children] had earned the right to attend good universities

That's actually not how university tuition works, and the rhetorical tricks being deployed here leave me cold. Your daughters did not have the right to attend those expensive private universities; they had the privilege of doing so, because you spent a lot of money you didn't really have to obtain that privilege for them. Which is awesome for them! No doubt it will benefit them (which is why you paid all that money, I imagine). But it's not entirely clear to me how "middle class" paying for your children to go to some of the most expensive schools in the world really is?

Stories like these terrify me, mostly because I am very concerned about what will happen to the retirement savings of people who did the responsible thing and did save, and lived well within their means, and contributed to their 401k (or other retirement savings).

The most active voters are the older groups, and as people like the author reach their elder years with nothing to retire on, they presumably vote in their own best interest.

As it stands now, there are ~$4 trillion dollars[1] in 401k savings. It is currently not being taxed, with the assumption that it will grow during a person's working years, and be taxed when it is withdrawn, as income tax.

However, as people like the author reach a certain age, I am fairly convinced that there will be a significant tax on retirement savings from the responsible folks to pay for those who didn't save appropriately. Politically it's fairly straightforward: we have millionaires who can "afford" to help pay for the less fortunate! This ends up hurting the people who saved so that they could properly afford to send their kids to schools, to be able to go on vacations in their retirement, etc.

As much as the story has been "max out your 401k!", I'm fairly convinced that it's going to end up being a worse deal than people count on. I don't really have a solution other than to "diversify investments", but stories like this do terrify me. I plan for retirement and try to be responsible about how I live my life so that when I choose to retire, I'll be able to enjoy it and spend time with kids/grandkids or golfing/traveling/whatever.

[1] https://www.ici.org/policy/retirement/plan/401k/faqs_401k

Discussion on a frugality forum: http://forum.mrmoneymustache.com/antimustachian-wall-of-sham...

In my friend group, our incomes vary by about a factor of 5. We all spend about the same, though. Which means those that are making more are much more comfortable, putting money away for a rainy day.

In contrast, a college friend that keeps in touch makes more than any of us, but she likes to lease new cars every three years, and she must spend money on the poshest pre-school in the area, and she is shocked to hear about people saving $2/3/5k a month. That's money that could be spent!

I don't think I have a point here. I just can't wrap my mind around people making $150k and not being able to "raise $2000" in a month's time.

I think a lot of folks are missing a big point: The author understands that he spent more than his income:

> In retrospect, of course, my problem was simple: too little income, too many expenses. Credit enabled me to forestall this problem for a time—and also to make it progressively worse—but the root of the problem was deeper. I never figured that I wouldn’t earn enough. Few of us do. I thought I’d done most of the right things.

The article is really about grappling with having "done most of the right things", yet not being able to afford "the right things", as well as the ensuing penalty.

I think the real point the article is missing: The standard-of-living in the US relies on unsustainable spending, compared to the 1990s-2000s. A deeper article might explore why the standard-of-living was being artificially inflated (a credit bubble, with its roots in the 80s). As a bonus article, consider if society turns against debt-as-a-way-of-life (like the generation that lived through the depression) or if the securitization-of-debt market begins to falter. That would be a true horror story.

PS. I think this is one of the meatiest articles to come out on personal finances in a long time, and it's far too meaty for the full discussion it should have (it'll be gone in a day on HCN, way past the 10 minutes or so any of us will spend on it.)

EDIT: Changed the bit about standard-of-living, which distracts the point. Yes real earnings are down, yes the employment ratio is down, yes college is unaffordable. But Total sq ft per house is way up, cell phones are a tech advance, so how you measure standard-of-living turns into another big topic.

The author repeatedly expresses regret at having made poor financial decisions using the savings or debt as a metric. But it seems to me he has done quite well in fact: his daughters went to private schools, elite universities, had a nice wedding. What family, poor or well off, wouldn't sacrifice as much for their kids? Then he managed to stay true to his calling of a writer without compromising or cutting corners (this is a big one!). Look at the many quintessential immigrant families who used to be doctors or lawyers in their native countries who take up menial jobs to scrape by and still do a lot worse than the author. Or others who swallow their pride and go into more well-paid professions that they don't necessarily have passion for.

I'm probably lowering the standard of living target reasoning like this, which is not fair to the article which focuses on what middle class should be like, or was in the post-war boom decades. But still it could be a lot worse.

> nearly one-quarter of households making $100,000 to $150,000 a year claim not to be able to raise $2,000 in a month.

When people say these things, I wonder if they are perhaps not thinking about taking drastic action.

For me, when I do disaster planning I think about extra-ordinary measures.

For example, when I was in my 20s if I needed 2000 in the next month I would have planned to at:

- At age 21. Break my lease and move in with my parents. The lease was month-to-month, and would have instantly put an extra $1000 per month in my pocket + food savings.

- At age 25. Break my lease taking a $6000 hit, but that'd be paid in installments over the next 12 months whilst I could certianly find a place that's worth less than $3,000 per month in rent.

- At age 29. AirBnB my house or co-let. It's a good area, I'd be surprised if I couldn't scrounge up $2000 that way fairly fast.

That's just an example of focusing on housing.

Another thing to do in desperate need would be to cut digital communications and sell equipment. Do you have an iPad or Macbook? Can you sell one and use the other? How about a smartphone. Sell it (300+ dollars back) and switch to cheapeer services (maybe around 50-80 back).

----

Tl;Dr.

People with $100,000 a year income have assets that they can sell or lease to cover a $2000 transaction, but they answer the question as if thinking "if I change nothing at all, can I come up with $2000".

That's not how budgets work.

The real problem with debt is not the interest. It's that it keeps you comfortable when you shouldn't be, so you don't make lifestyle adjustments when you should.

These lifestyle adjustments aren't easy, and the way to be good at them is the same as for anything else: practice.

But people don't practice when they are young because they have easy credit. By the time the problems can't be brushed away any more (even with borrowing), they have children, making the decision that much harder. And without practice, they don't even know how to downsize.

There are so many perfectly reasonable things people can do to save money that aren't even considered. What about moving into a small apartment, eating beans and rice, and riding the bus for a few years while you get back on your feet? Sounds bad to a lot of "middle class" people, but I bet it's more pleasant than a downward spiral. And if you do it soon enough, you can get back to a good place quickly.

And I don't buy in to the "whatever college you want" guilt. I'll tell my children they have a guarantee of state school (assuming they get in), or education I Germany (where it's free). Anything else they need to get creative or lucky.

People's spending habits are so broken, I think there must be some equivalent adult financial schooling/courses to give people right training on the most important in their life.

I frequently run in to relatives and bosses and other senior people who complain of not having money or expressing surprise when they learn some one earning far less or doing a job that they think is beneath them makes/has made a good investment. Finally they tend ultimately complain of life being unfair to them. Forgetting the fact that they make 5-6 times more and their state is their own doing.

Yet more I look at their lives, I see a spending pattern that co relates to borderline nonsense. They take vacations because some one else is, and not taking one frequently means losing brag rights in social circles. They have cars they don't need, they buy expensive cameras and lenses they are likely to never use or even know how to. They buy clothes which they are going to not like a month later. They change gadgets every year. They seem to spend money on everything which they don't need, or use or even remotely derive any value from.

Its simply a never ending cycle of upgrades and added finances time after time, which isn't unsustainable.

Even some very intelligent people I know are very poor in understanding large timescales, how investments work, how their own spending can be destructive to them.

At the very same I see people making far less, but a home early in life, start contributing to that retirement fund early and come out on top.

Honestly in the free market economy, freedom seems like something most people are incapable of handling. People have themselves to blame.

Good lord, I expected more from HN commenters. Yall are talking about how he is a bad spender and should have done better with his money. Did any of you read this all the way through? I'll excerpt what the author literally says is his point of the article.

"I don’t ask for or expect any sympathy. I am responsible for my quagmire—no one else. I didn’t get gulled into overextending myself by unscrupulous credit merchants. Basically, I screwed up, royally. I lived beyond my means, primarily because my means kept dwindling. I didn’t take the actions I should have taken, like selling my house and downsizing, though selling might not have covered what I owed on my mortgage. And let me be clear that I am not crying over my plight. I have it a lot better than many, probably most, Americans—which is my point. Maybe we all screwed up. Maybe the 47 percent of American adults who would have trouble with a $400 emergency should have done things differently and more rationally. Maybe we all lived more grandly than we should have. But I doubt that brushstroke should be applied so broadly. Many middle-class wage earners are victims of the economy, and, perhaps, of that great, glowing, irresistible American promise that has been drummed into our heads since birth: Just work hard and you can have it all." (emphasis added)

The point is that though the author screwed the pooch on his finances, he assumes that he is a lot better off that most Americans. If true, that should be shocking to us all.

Other commenters point out that those that did save will have to rescue those that have not and that is a BS thing to have to do. I think that is probable, though not certain. However, like this student loan time-bomb, I think that forgiveness is the best path. Yes, we can lord over those that were dumb and did what others told them to do without really thinking. But I would rather have happier and less-stress neighbors and fellow citizens with the forgiveness even knowing that they will do it again and thinking to themselves that they cheated the system and won. We can be 'right' but have to sit in the mud, or we can forgive and all be happier and wiser for the next round.

Did he really have to pay for his daughter's wedding? It's like 4000 words about how poor he is then somehow he finds many thousands for a totally unnecessary expense

I admire this guy for making sacrifices to educate his daughters well. (And it seems like he's succeeded...Rhodes Scholars aren't exactly common.) It looks to me, however, like he's might have failed in one important aspect.

He should have taught them from an early age about budgets and outlier expenses and the real costs of things (e.g., good school district for them, not much work for his wife). Instead, he's kept them in the dark, to the point of burning retirement savings on a wedding.

No one is born knowing how personal finance works, and learning the hard way sucks. Parents have an obligation to educate their children about this stuff. It's tragic that so frequently, after learning the hard way themselves, they hide everything from their kids, and in doing so, set the kids up for the same set of hard knocks.

It seems that Americans have a serious issue with debt. I'm Italian and I live in France... and there are only 2 things I would get in debt for: a car (only if strictly necessarily) and a house. Nothing else. If you do not have the money for something just wait till you have saved enough to buy it without getting in "financial peril". My golden rule is to always spend as if you had only a third of the money you actually have... and thx to it now (just got 30) I could live with my savings for at least 2 years without working at all maintaining the same lifestyle. An emergency of 2000$ (or euros) is really no big deal.

"We don’t make [choices] with our financial well-being in mind, though maybe we should."

Uh, hello? The paragraph consists entirely of "I" statements about the bad choices he made and concludes with a "We".

There's no "we" about it -- I made (make) choices to improve my financial wellbeing. If you don't, that's your problem.

> You look at these people and they are young professionals,” Lusardi said. “You expect that people would say, ‘Of course I would come up with it.’ ” But many of them could not.

I know when I go to work I'm pretty much surrounded by millionaires. I know when I park my car there, it's surrounded by Lotuses and Teslas. What I really want to see is a venn diagram of the two, because I suspect a large portion of the latter are being mortgaged by people who don't have any real exit strategy.

I think the lack of assets explains the angst shown by many Americans this election cycle much better than the employment rate. Enough people are working, they're just not making enough.

Reminds me of Mark Cuban's Ultimate Stress Test: http://blogmaverick.com/2016/02/08/some-thoughts-on-the-pres...

> But recent research indicates that when people get some money—a bonus, a tax refund, a small inheritance—they are, in fact, more likely to spend it than to save it.

Not recent at all. I first read about it in The Millionaire Next Door book. Referred to as the "better than" theory [1].

Plain and simple, people don't like to save when they have the option. They like immediate reward. If you make $500 more a month after a raise, many people will reward themselves for the raise, justify buying something they've wanted, etc. After a while, the mindset that they are living just fine while spending the extra money sets in and they end up never saving the extra $500.

[1] https://en.wikipedia.org/wiki/The_Millionaire_Next_Door#.22B...

My own practice in recent years has been to analyze trends and convert them into investments. So for instance, I have substantial positions in McDonalds, Altria, Philip-Morris, Exxon Mobile, Facebook, and Service Corp (none of which do I patronize). People be gorging, smoking, posting online, and dying. To invest in rampant financial ignorance, I looked into pawn shops and payday loans, but those are all privately held (e.g. super-lucrative, don't need outside capital). I'm looking into banks, Visa and MasterCard, and other facilitators of credit and payments, as possible growth areas.

People (even those who reject Marxism) ought to recognize the fact that money is the crystallization of labor, nothing more, nothing less. It gets more complicated and abstract from there onward, but if one starts each financial interaction with that "swing thought" then perhaps one will make better decisions. I know I do.