The Secret Shame of Middle-Class Americans
theatlantic.com
theatlantic.com
> "I made choices without thinking through the financial implications"
That's it. Full stop. You bought a car without having a stable job. You bought a house way outside your earning ability. You bought fancy clothes and gadgets without having the cash to pay for them. Don't blame credit, you did this to yourself.
>"Ate eggs for days, while waiting with my last 5$" ?? Eggs are no-where near the cheapest food you can get. eggs are 12$/2000 calories!! He should've gotten oatmeal -> at 70c per pound, it comes out to less than 1$ per/2000 cals. And I'm sure this is only the tip of the ice berg of financial mistakes, as he's making over 50K per year average.
But, there's a bigger message we can draw from this. 1. We desperately need better personal finance training - it should be a primary subject taught in k-12
2. We need to get housing costs down. The most important money you spend is shelter - everyone needs shelter, everyone deserves it. It's appalling that in over a hundred years we haven't made any progress at all in this industry. And by progress, I mean, nationwide: the cost of housing relative to inflation has not decreased at all. Some states have been regressing to the extreme: California. Part of the solution: Get rid of all housing regulation that prevents innovation in this industry.
Outside of housing cost, there's many ways to save, it just takes some research.
Safety regulations are especially important for cheap block housing.
But they don't come free.
I'm simply pushing back against the idea that investors need to be free to innovate people to death.
Oatmeal is low on fat and protein
Where is that?
I wonder if people are wired to prefer a single stress source (financial), instead of a bunch of smaller stresses.
e.g. You have to go to college - modern explicit caveat: studying a major that has a chance of paying back the college debt.
It's a good to buy a single family house - modern explicit caveat: only if you have sufficient income stability and down payment saved - before a house was a small enough portion of middle class income that it could generally work out well in a wider range of cases.
Keep up with your peers spending on social cues: vacations, new cars, etc - keeps you networked into a social group for work/business opportunities (but if the group as a whole can't sustain some lifestyle... then this becomes a negative...)
etc...
I don't think this is the sole problem, but I think it's a big social driver of it.
I could easily teach a class on financial planning for young adults, but it's everything I can do to keep my own financial house in order. It's certainly not because I don't know what I'm doing wrong.
Multiple bank account with automatic payroll deposits are your best friend as weird as it sounds.
FWIW, I strongly suspect that I've turned the corner on that in the past few months.
It's amazing how difficult it is to break the habits acquired while younger and less financially secure. The mindset of "If there is money, spend it on things that you need before it's not there" has been taken me almost a decade to shed.
"People shouldn't be able graduate high school until they can understand the financial implications of a loan!"
"Schools and teaching are ruined because they blow all their time teaching to the test! My little mini-me is held back from graduating because he can't calculate compound interest!"
With the way things are, it's very easy for someone who hasn't been explicitly educated otherwise to look around and just assume that buying all you can and making minimum payments is just how things work.
The idea is that we see lots of people around us who we think are very much like us. And we see that lots of them have a house with 3000+ square feet. And lots of them drive an Escalade. And lots of them have their kids on travel sports teams. And lots of them have this and that and the other thing. Every time we see that people around us tend to have such a thing, that suggests to us that we can afford it too.
The thing is, we make each of those observations independently. We don't generally take a complete inventory and see that Family A is paying for those sports activities, but doesn't have the top-of-the-line cable TV package; while Family B has the cable TV but goes without the annual vacation to the Caribbean.
We tend to want all the things that we observe that much of our community has, without thinking too deeply about the fact that none of them actually have all of it.
EDIT - spelling
Advertising spending is at around $200B/yr in US media alone.
... And how much of that would you say is targeted at getting people to make good financial choices for themselves?
There's clearly a problem and it should be addressed both by education and better UX (likely through legislation).
Yeah, shit fucking sucks today. Wages haven't increased, student loan debt, etc. etc, but there's a point where people have to stop whining and start protecting themselves against the reality of the times.
Like regulations around children's toys I think both sides have fair arguments--neither is 100% correct. I just don't think it's 100% personal responsibility in a modern society.
Your conclusion assumes that marketing doesn't work. (It does.) The people who get consumers to do those things are more sophisticated and organized than most consumers. Many people do need to use more discretion with spending, but that isn't the whole story.
Another thing to consider is that it's very difficult to improve one's situation when you don't have modern things that save time: transportation (car), housing that isn't too far from work, and other things that save enough time to allow one to invest time into increasing total assets. Making money often requires investing money. People who do have sufficient money don't think about the small things that give them enough free time to make more money.
"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 recall there being a few studies suggesting that being poor can lead to poor decision making, and I certainly agree that poor decision making reinforces negative outcomes such as credit card debt. Thus they are individually responsible for what they've done, but the impoverished middle-class as a whole shouldn't be blamed for where they're headed.
Poverty Impedes Cognitive Function
The problem that I see here is that I was never forced to prove my ability to pay my debt, and the limit isn't raised and lowered to match my current circumstances.
I agree that someone who couldn't reasonably recover from $20k in debt shouldn't be given the opportunity to accrue that much. It doesn't do anyone any good, aside from the leeches that make things harder for people in trouble, while purporting to help. I'd like to not be hamstrung by someone else's difficulties, though.
Not that we should not touch predatory lending. But so much of our economy is built on advertising and stuff, just shutting off the loan tap will not fix the problem.
By then they end up with a hefty amount of debt and their lifestyle preferences are ratcheted up; they don't want to downgrade from their BMW to a Honda, move to a less fancy neighborhood and start cooking more meals at home. They are more inclined to keep scraping by with their luxuries, overburdened by debt service.
Happy to be proven otherwise...
How casually we disregard the people whose poor decision making underpins capitalist society. Falling for carefully crafted messages to alter human behavior, they work in near-servitude to purchase their dreams and happiness.
Someone has to pay interest on credit cards - I don't :)
I don't know if financial literacy can be taught effectively; it may link back to fundamental behaviors.
Sane western cultures don't allow citizens to fall into debt-peonage. This is why we forbid usury for so many centuries, based on the late roman empire experience.
I'm not going to pontificate about living within your means or whatever, obviously people have reasons for doing what they do. But I don't understand how so many people are cheerfully paying the minimums and treating credit as basically an extension on their salary.
I have seen this at work as well, people making low six- figure incomes paying minimums. I've even had someone tell me that paying in full is bad for your credit score.
Is this a generally held belief? Do most people pay the minimum?
That one I always find interesting. The credit bureaus definitely try hard to make it as confusing as possible, but even then, the amount of urban legends is baffling.
I moved to the US a few years ago knowing nothing of how that stuff worked. 3 years later after getting my SSN I had a credit rating of 760 and got a jumbo mortgage at a pretty good rate. The core of the "formula" for credit rating isn't too complicated. And "keeping a balance on your card and using it regularly" is absolutely not part of it (beyond the fact that many banks won't let you raise your limit if you don't use it, and your total unused credit IS part of the formula)
Why would any sane person do this (pay min. balance)?
As to having utilization on the card, normal usage is enough to ensure that there is always a balance due on the card anyway. (If you spend money on the card regularly, the payment you send in August is for things you bought in July and by the time it posts, you have more August charges on the card, meaning the balance is only ever zero if you do a massive return or if you have a multi-week spending embargo hit at just the time the credit company pulls your report.)
Not sure what the mechanics are behind the scenes, but I keep an eye out for interest charges and I haven't seen any for years.
> meaning the balance is only ever zero if you do a massive return or if you have a multi-week spending embargo hit at just the time the credit company pulls your report.
I think I implemented the $10 policy because I wasn't using my cards very much at the time. Your system makes the most sense for anyone who uses their card regularly.
(The 90% is my Target Redcard with a $300 limit, pretty easy to max that puppy out... in fact its bad for my credit to even use, as the 90% utilization makes me look in trouble, but it can be hard to pass up 5% savings..)
Your bank may not want to increase the limit on a credit card you never use, but that's about it. If you want a high credit score, get the highest limit you can, always pay it off, keep it around for a long time, and never miss a payment for over a month. You also want multiple lenders (a single credit card won't, or multiple ones from the same bank won't cut it).
What!? This... Isn't even remotely true. Maybe it's just my peer group and family but complaining about money problems is extremely, extremely common. Other than my coworkers I know more people who talk about lack on money then don't.
It kinda gets old though because I see the complainers complain then go out and make terrible financial choices. I have a friend whose always complaining about money yet he's buying expensive clothes for his wife, bought two brand new cars (one for the wife), and a motorcycle. While complaining he can't afford groceries. Then goes on several vacations. These people actually have enough money to fund a pretty decent lifestyle if they just worked to get out of debt then worked to budget.
Seems people just want to buy the things they want no matter their ability to pay for them. And banks are happy to lend money to finance this lifestyle. So we have more advertising, more credit, and more things to buy.
I think there's a cultural expectation of perpectual debt. Like everyone always has multiple "car payments" and a "house payment." Need something? No need to save for it, just take out a loan and add it to your monthly payments. That's how people get in trouble - leaving no cushion.
I just find it hard to get through this sort of article, making it seem like average-to-good income earners, someone earning $50,000 a year, are victims of some sort. I went without for a long time to get myself out of student loan debt and the get myself to a place of economic security. If I can't afford something, I don't buy it. It's not hard concept, but it does require going without. I also don't think paying these people more would help - they would just spend more.
I was a spendthrift for years, and even regular raises couldn't get me ahead. This guy teaches you how to not only save money, but take pride in not having the latest and greatest everything. This, IMO, is what makes spending within your means sustainable in a society that looks down on those without the proper social status markers.
If you're in an economically depressed area where the richest family in town doesn't have a pot to piss in, your poverty isn't you fault, and we should have a better safety net that helps people up to more valuable careers. If you have means, save your money, and take pride in not being suckered in by people selling you stuff that won't make your life better!
When I think back i was very stupid at 18, but that's the age everyone expected me to go to college, and everyone told me it's ok to take a loan because with a great education I'll have the best job, and it will be easy because I'm super smart. Everyone encourages an young dumb 18 year old to get in a large debt like it is nothing.
Then, "do you have good credit? Get a good car cause you don't want to be thinking about fixing it, you want to focus on your studies"
Then, "buy a house, otherwise you are throwing money away every month while you could be investing in your own home"
This is something totally normal, it's the system. It's so ingrained in us (at least in the US) that not having these debts is socially shameful.
Today i can pay $400 for an emergency, most my friends can't.
Budweiser is the king of beers, it says so on the label. The World Series is the world championship in baseball. etc etc etc.
However - this is great for the overall economy. The US is breeding the perfect customer, that can be sold anything at any time.
You can see it in startups too, you can sell product based on a powerpoint, a "vision". 9 out of 10 with nothing behind it. It would never, ever, fly in Germany for example. People there assume a scam before anything else.
So, shit for individuals, great for the overall economy. Pick your poison.
When i was 20 i wanted to make 100k by 30
When i was 30 i wanted to make 1m by 40
When i was 40 i didnt care about money
And now in my 60s i want to die $3m in debt.
"Why do we spend our youth chasing money and then our money chasing youth?"
Given that we're telling everybody that there's a fallback available for many kind of problems, we should expect that people will de-emphasize the amount they sacrifice for their own such purpose.
So the stats quoted in the article, about how much margin people have for rainy days should be supplemented by information about the net value of the benefits they will, or could, derive from the government. What's the NPV of their expected Social Security and Medicare benefits? What can they expect to get in aid from Medicare or CHIP-type programs? What would their unemployment benefits be, should it come to that, or food stamp and related programs?