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?
There is no doubt that they have spent money foolishly, but bear in mind you are talking about them spending on a wedding and college. These are not trips to Vegas with hookers and blow, but rather core human experiences, closely tied to the concept of "middle class" themselves, and not financial back-breakers for middle class families in the past.
So, yes, there is some blame to be apportioned for the spending habits. However, there is also the systemic problem of real incomes declining significantly, with major life costs (housing, education, medical, taxation) increasing dramatically:
Either way, the decline in real wages in the face of rising major life costs is a major contributor to the increasingly precarious position of many middle class families.
>> 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.
Bingo.
As much as I think of social security as a ponzi scheme, one thing I do like about it is that it forces people to contribute and they can't touch their contributions. Sure you might only get $.60 back for every dollar you throw in there but hey at least you'll get something.
It's sad to say it, but the majority of people are not financially savvy enough to make sound decisions. Left to their own devices most people wouldn't save diddly squat, work till they're fired, then be destitute. And they probably won't have kids to take care of them anymore either because "Kids are expensive ... you can't afford that!".
I think part of the problem with those 47% is that they can't distinguish the two cases. Middle class people aspire for their children to be upper middle class, and the traditional routes to such jobs (excluding the software world), require an expensive education. They do not require an expensive house, or expensive car, or expensive wedding.
The article strikes a chord with me, because the author exhibits some of the same thinking as my own parents. They paid for my brother and I to go to college, for which we are very grateful. But they also say that the giant house in an expensive zip code, the foreign cars, etc, are "for us" using some nebulous baby boomer thinking like "if you want to be somebody, you have to look like somebody."
Far be it for me to judge my parents' choices. But recently, my dad quit his job and started a business. At that time, he definitely wished he had built up more of a runway.
People like this writer are narcissists -- relatively wealthy people who squander their gifts and seize attention from the working class who never have a chance to waste money like he does.
In fairness, if a wedding eats up your entire retirement savings, you either had a royal wedding or had no real money for retirement. I put enough in my 401k each year to pay for a wedding.
>No doubt it will benefit them (which is why you paid all that money, I imagine).
The nightmare many are facing is that it doesn't benefit them. Regardless of what self improvement one may receive from their degree, certain degrees are being awarded at a faster rate than the economy demands them, depressing wages for those who can use that degree to get a job and resulting in many who can't use that degree to get a job.
This is not the first woe is me article put out by destitute writers. I can't say I feel bad for his life choice to get a degree in something that everyone knows pays poorly.
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.
Not just 401k. Saving is always a risk, because people spend themselves into poverty and claim the same benefits as people who never has income. This is why you pay a higher interest rate on loans than you get on investments -- to cover for deadbeats.
Ultimately, you have to be happy that spenders overlay for stuff, and the interest gains on savings are better than the tax hit, and day-to-day financial security makes you feel good and finances better opportunities -- like you can afford to move for a job or whatever.
Agree 100%. Great conversation tangent over on reddit's FI sub about this article, and specifically, the fear that those of us who were/are responsible will be taxed to support those who were/are not: https://www.reddit.com/r/financialindependence/comments/4fhs...
For those of you who prefer the whistling-past-the-graveyard approach, Christopher Buckley's book 'Boomsday' is hilarious.
Anyone care to share how they are protecting their savings against this increasingly likely prospect?
Yeah I have very big (somewhat "Knightian") concerns about that, per my other comment [1], in that it's very easy for us to hit a tipping point. We have massive unfunded obligations coming due, and it's it's not that easy to raise taxes, despite sanguine dismissals that "oh, just some small tweaks and it'll be fine".
But the tipping point comes when you have to take too much from present workers for past obligations, and some of them say, "wait, screw this, I'll just take my labor somewhere else", which means they have to tax a bigger incentives, which scares off more workers, and spirals out that way.
Relatedly, I have grave reservations about prodding the entire economy to have a huge nest egg in 401k-eligible investments, which can distort the voting base into favoring government interventions that favor the largest companies over smaller ones that don't get publicly listed, changing the playing field.
In addition to all the other diversification advice you can read everywhere, you need to have three pots of savings:
1) pre-tax retirement savings such as traditional 401(k) or traditional IRA
2) post-tax retirement savings such as Roth 401(k) or Roth IRA
3) normal cash and investments, outside of any sort of retirement scheme
Being diversified in that fashion will give you more flexibility to react appropriately to any changes in the tax laws.
And, if you can swing it, you also want some assets that aren't readily visible to the tax man. In decades past, that meant something like a Swiss bank account. Now, perhaps, it might mean something like gold coins.
And there are even more exotic ways to "shelter" your assets. My father, who was displaced by WWII, stressed the value of a good education in a useful field. A malevolent government could confiscate your house and your money, but it couldn't take away what was inside your head.
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 just can't wrap my mind around people making $150k and not being able to "raise $2000" in a month's time.
A person making $150k who has no savings/retirement/etc is a someone with very serious money management problems. In every state in the US, a $150k household income places you above the "middle class."
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.
Standards-of-living may have dropped dropped (though I'm pretty skeptical) but if so the drop is pretty small. This guy's financial problems are much bigger than this drop. I think that the personal responsibility deficit we have in this country is a much bigger deal than whatever issues we have with middle income wages.
For a variety of reasons (easy access to credit, the media, who knows what else) a great many people are living above their means. And that's a big problem.
Standard of living is not dropping. Real wages are dropping, but technology and efficience improvements more than cover the difference. Yes, income inequality is growing, and that is a fairness problem. But no one would prefer a random spot in 1980s USA over 2010s USA, by an objective measure of overall economic wealth.
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.
His specific complaints seem pretty reasonable to me:
We haven’t taken a vacation in 10 years. [...] We have no retirement savings, [...] 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.
They're not destitute, but shouldn't most people expect to get at least some of those things more often than that?
The lack of retirement savings seems particularly bad, as the author notes they used their parents' savings to pay for their children's educations. Their children won't be able to do the same.
And as another commenter has noted, it's not just a "woe is me" sob story, the idea is that the author is representative of a secret 47%(!) who are ashamed to admit how badly they're doing. The comparison with impotence seems apt.
At the end of the day, you lie in the bed that you make. The trappings of prosperity are expensive, so you need to weigh the cost/benefit carefully.
My colleagues tease me about my 15 year old car with nearly 300k miles. My peers at work mostly lease BMWs and SUVs. But cars are an expense with a payout worth little to me. (If I was a hotshot salesdude, that trapping of success would have a high value.)
You can't have it all. If you try to do so, you're going to sacrifice something -- and in most cases you sacrifice your future.
The problem is that everything is done without a safety net of an emergency fund, retirement funds, etc. as a fallback. For some reason (keeping up with the Jones'?), many Americans have the idea they must spend so much on lifestyle (transport, bigger house, services, weddings, kids) that they never have much to save in retirement, emergency savings, or other investments.
On the other hand, would spending less on private schools, elite universities and so on have been worse than being in a situation where one major whoopsie leaves them living in a cardboard box?
Put your own oxygen mask on first. Aviate, navigate, communicate.
What I don't understand is this: if he sacrificed so much for his kids, they went to private schools and elite universities, why would he have trouble asking them for $400 for an emergency? Is a good education worth nothing these days, are they making poor financial decisions too? I refuse to believe that you can send several kids to private schools/universities without being able to save some money for emergencies, or accumulate some assets/property that can be liquidated if needed.
> 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".
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.
If my kids are smart and they do good work, why would I want to limit their college opportunities by forcing them to go to a state school? In my state there is one really good state institution (University of Maryland, College Park), and that's how it is for many states (or there are zero good state schools). And if my kids want to do research or study engineering or computer science, it's a very good school for that, but almost every school has weaker areas (and some have none they are particularly good at).
On a micro level, sure you can say maybe send your kids to cheap schools. On a macro level, college costs are getting way out of hand. Private schools should be able to serve more than the 1 percent and the really poor on full rides.
I graduated 10 years ago from an elite private university. It was expensive then, but it's a complete bargain today. Prices are raising much faster than inflation. I'm trying to save a few hundred thousand for each kid for college, but in 16-18 years, that won't go that far.
I'm only going to pay to send my kids to a private school if its a really good one, but I'm not going to tell them there is a whole class of schools they can't go to just because I'm cheap.
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
Hah, if only my parents or wifes parents had paid for our wedding. That would have been pure luxury. We saved for three years to pay for our wedding. We were very frugal and it was beautiful. Paid for the entire thing without a cent of debt. It's certainly doable.
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.
I think the author's idea is that he is representative of the 47% of Americans that don't have even a $400 dollar emergency fund. And that "We" is the people in that 47%.
If survey is accurate, that large of a percentage of the population means that society has a problem. That does not just impact the individuals that don't follow good financial practices when they could. So it ends up being your (people that make wise financial decisions) problem to a degree.
This would have been a pretty interesting story if he'd explained his decisions in detail (other options considered, what specifically he thought would happen, how much research he did then, etc) and taken responsibility for the option he chose.
As written, when he finally gets to his own story, the negative outcomes all seem to be described as inevitable or circumstance. The alternative choices are so simplistic ("I knew how easily my girls could be marginalized in a society where nearly all the rewards go to a small, well-educated elite," "and cutting corners to turn them out faster, I knew, would be cutting off my career") that I think his argument would have been stronger with no explanations at all.
> 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 this is a side effect of having jobs which are, relative to the rest of the country, extremely well paid, combined with very high cost of living.
In the UK if you told someone you'd be moving to the Bay Area on a starting salary of $130k you would be looked at like you were minted for life. For most tech graduates that's more than their parents' final salary and that's where you get in at! However there's a disconnect between what seems like a high salary and your spending power in somewhere like San Francisco.
Over here tech salaries are a lot lower, though still good compared to everything except finance. Anyone who lives in London will assuredly not be buying a Tesla on a Google starting salary.
People like saying "Oh he earns a six figure salary", it's a status symbol, and the natural response to earning that sort of cash after going through college and being dirt poor is to splash it a little.
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.
> 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.
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.
[+] [-] Lazare|10 years ago|reply
> 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?
[+] [-] carsongross|10 years ago|reply
So, yes, there is some blame to be apportioned for the spending habits. However, there is also the systemic problem of real incomes declining significantly, with major life costs (housing, education, medical, taxation) increasing dramatically:
https://research.stlouisfed.org/fred2/graph/fredgraph.png?wi...
This problem is significantly worse if you use the old CPI, which some people feel is more honest:
http://www.soundmoneyproject.org/wp-content/uploads/2012/03/...
Either way, the decline in real wages in the face of rising major life costs is a major contributor to the increasingly precarious position of many middle class families.
[+] [-] koolba|10 years ago|reply
> 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.
Bingo.
As much as I think of social security as a ponzi scheme, one thing I do like about it is that it forces people to contribute and they can't touch their contributions. Sure you might only get $.60 back for every dollar you throw in there but hey at least you'll get something.
It's sad to say it, but the majority of people are not financially savvy enough to make sound decisions. Left to their own devices most people wouldn't save diddly squat, work till they're fired, then be destitute. And they probably won't have kids to take care of them anymore either because "Kids are expensive ... you can't afford that!".
[+] [-] rayiner|10 years ago|reply
The article strikes a chord with me, because the author exhibits some of the same thinking as my own parents. They paid for my brother and I to go to college, for which we are very grateful. But they also say that the giant house in an expensive zip code, the foreign cars, etc, are "for us" using some nebulous baby boomer thinking like "if you want to be somebody, you have to look like somebody."
Far be it for me to judge my parents' choices. But recently, my dad quit his job and started a business. At that time, he definitely wished he had built up more of a runway.
[+] [-] tamana|10 years ago|reply
[+] [-] pwthornton|10 years ago|reply
[+] [-] mfoy_|10 years ago|reply
They've sold people that they not only can, but should, live beyond their means.
[+] [-] unknown|10 years ago|reply
[deleted]
[+] [-] Lawtonfogle|10 years ago|reply
The nightmare many are facing is that it doesn't benefit them. Regardless of what self improvement one may receive from their degree, certain degrees are being awarded at a faster rate than the economy demands them, depressing wages for those who can use that degree to get a job and resulting in many who can't use that degree to get a job.
[+] [-] dforrestwilson|10 years ago|reply
[+] [-] JonFish85|10 years ago|reply
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
[+] [-] tamana|10 years ago|reply
Ultimately, you have to be happy that spenders overlay for stuff, and the interest gains on savings are better than the tax hit, and day-to-day financial security makes you feel good and finances better opportunities -- like you can afford to move for a job or whatever.
[+] [-] kom107|10 years ago|reply
For those of you who prefer the whistling-past-the-graveyard approach, Christopher Buckley's book 'Boomsday' is hilarious.
Anyone care to share how they are protecting their savings against this increasingly likely prospect?
[+] [-] SilasX|10 years ago|reply
But the tipping point comes when you have to take too much from present workers for past obligations, and some of them say, "wait, screw this, I'll just take my labor somewhere else", which means they have to tax a bigger incentives, which scares off more workers, and spirals out that way.
Relatedly, I have grave reservations about prodding the entire economy to have a huge nest egg in 401k-eligible investments, which can distort the voting base into favoring government interventions that favor the largest companies over smaller ones that don't get publicly listed, changing the playing field.
[1] https://news.ycombinator.com/item?id=11537585
[+] [-] PhantomGremlin|10 years ago|reply
Yes, definitely.
In addition to all the other diversification advice you can read everywhere, you need to have three pots of savings:
1) pre-tax retirement savings such as traditional 401(k) or traditional IRA
2) post-tax retirement savings such as Roth 401(k) or Roth IRA
3) normal cash and investments, outside of any sort of retirement scheme
Being diversified in that fashion will give you more flexibility to react appropriately to any changes in the tax laws.
And, if you can swing it, you also want some assets that aren't readily visible to the tax man. In decades past, that meant something like a Swiss bank account. Now, perhaps, it might mean something like gold coins.
And there are even more exotic ways to "shelter" your assets. My father, who was displaced by WWII, stressed the value of a good education in a useful field. A malevolent government could confiscate your house and your money, but it couldn't take away what was inside your head.
[+] [-] randomgyatwork|10 years ago|reply
[+] [-] MatthewRayfield|10 years ago|reply
[+] [-] neogodless|10 years ago|reply
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.
[+] [-] Merad|10 years ago|reply
A person making $150k who has no savings/retirement/etc is a someone with very serious money management problems. In every state in the US, a $150k household income places you above the "middle class."
Source: http://www.businessinsider.com/middle-class-in-every-us-stat...
[+] [-] mfoy_|10 years ago|reply
"The secret shame of the American Middle Class is that they listen to people telling them 'it's not your fault' too much."
[+] [-] jpmattia|10 years ago|reply
> 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.
[+] [-] harryh|10 years ago|reply
For a variety of reasons (easy access to credit, the media, who knows what else) a great many people are living above their means. And that's a big problem.
[+] [-] tamana|10 years ago|reply
[+] [-] foobarian|10 years ago|reply
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.
[+] [-] iainmerrick|10 years ago|reply
We haven’t taken a vacation in 10 years. [...] We have no retirement savings, [...] 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.
They're not destitute, but shouldn't most people expect to get at least some of those things more often than that?
The lack of retirement savings seems particularly bad, as the author notes they used their parents' savings to pay for their children's educations. Their children won't be able to do the same.
And as another commenter has noted, it's not just a "woe is me" sob story, the idea is that the author is representative of a secret 47%(!) who are ashamed to admit how badly they're doing. The comparison with impotence seems apt.
[Edit: spelling]
[+] [-] Spooky23|10 years ago|reply
My colleagues tease me about my 15 year old car with nearly 300k miles. My peers at work mostly lease BMWs and SUVs. But cars are an expense with a payout worth little to me. (If I was a hotshot salesdude, that trapping of success would have a high value.)
You can't have it all. If you try to do so, you're going to sacrifice something -- and in most cases you sacrifice your future.
[+] [-] geerlingguy|10 years ago|reply
[+] [-] mcguire|10 years ago|reply
Put your own oxygen mask on first. Aviate, navigate, communicate.
[+] [-] lazyjones|10 years ago|reply
[+] [-] true_religion|10 years ago|reply
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.
[+] [-] jeffdavis|10 years ago|reply
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.
[+] [-] pwthornton|10 years ago|reply
On a micro level, sure you can say maybe send your kids to cheap schools. On a macro level, college costs are getting way out of hand. Private schools should be able to serve more than the 1 percent and the really poor on full rides.
I graduated 10 years ago from an elite private university. It was expensive then, but it's a complete bargain today. Prices are raising much faster than inflation. I'm trying to save a few hundred thousand for each kid for college, but in 16-18 years, that won't go that far.
I'm only going to pay to send my kids to a private school if its a really good one, but I'm not going to tell them there is a whole class of schools they can't go to just because I'm cheap.
[+] [-] kamaal|10 years ago|reply
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.
[+] [-] Balgair|10 years ago|reply
"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.
[+] [-] seibelj|10 years ago|reply
[+] [-] donatj|10 years ago|reply
[+] [-] neogodless|10 years ago|reply
[+] [-] jqm|10 years ago|reply
[+] [-] auntienomen|10 years ago|reply
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.
[+] [-] freedom2097|10 years ago|reply
[+] [-] rwc|10 years ago|reply
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.
[+] [-] KyleBrandt|10 years ago|reply
If survey is accurate, that large of a percentage of the population means that society has a problem. That does not just impact the individuals that don't follow good financial practices when they could. So it ends up being your (people that make wise financial decisions) problem to a degree.
[+] [-] troydavis|10 years ago|reply
As written, when he finally gets to his own story, the negative outcomes all seem to be described as inevitable or circumstance. The alternative choices are so simplistic ("I knew how easily my girls could be marginalized in a society where nearly all the rewards go to a small, well-educated elite," "and cutting corners to turn them out faster, I knew, would be cutting off my career") that I think his argument would have been stronger with no explanations at all.
[+] [-] 13of40|10 years ago|reply
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.
[+] [-] joshvm|10 years ago|reply
In the UK if you told someone you'd be moving to the Bay Area on a starting salary of $130k you would be looked at like you were minted for life. For most tech graduates that's more than their parents' final salary and that's where you get in at! However there's a disconnect between what seems like a high salary and your spending power in somewhere like San Francisco.
Over here tech salaries are a lot lower, though still good compared to everything except finance. Anyone who lives in London will assuredly not be buying a Tesla on a Google starting salary.
People like saying "Oh he earns a six figure salary", it's a status symbol, and the natural response to earning that sort of cash after going through college and being dirt poor is to splash it a little.
It's a fairly common question on Quora:
https://www.quora.com/I-just-received-a-full-time-job-for-10...
[+] [-] patrick_99|10 years ago|reply
Reminds me of Mark Cuban's Ultimate Stress Test: http://blogmaverick.com/2016/02/08/some-thoughts-on-the-pres...
[+] [-] klue07|10 years ago|reply
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...
[+] [-] masterponomo|10 years ago|reply
[+] [-] masterponomo|10 years ago|reply