I was surprised that no one had posted this already, this article has been very popular and I've seen it pop up in multiple places.
"The Secret Shame of Middle-Class Americans"
Nearly half of Americans would have trouble finding $400 to pay for an emergency. I’m one of them.
Thoughts? All I can say at this point is that when I read it, I cringed multiple times and wanted to grab hold of the author through my screen and give him a good shake. Emptying your 401K to pay for your daughter's wedding, and intentionally not paying taxes? Really?
You have to understand that the average person isn't (at least in the US) isn't financially literate. And if they are somewhat literate they probably have extremely limited knowledge. Once you factor in the "rat race" of having to keep up with your peers by constantly consuming and spending your (already limited) income, you have a death spiral of your personal finances. People are too caught up into giving the appearance that they're well off rather than making sacrifices and admitting "I can't afford this house, that vacation, etc."
I agree but there is also the flip side to this as well some people do not want to be financially literate, I have met a few of them because thinking long term is too painful for them, almost like losing weight some people do no think that they need a 401k or investments. Live for now is very common with the average joe, even when they can put some $$ aside for a rainy day, this is what marketing people focus on how people think in terms of their lifestyle and self image, then produce products and services that people need to have because they believe their life depends on it, just look at the people who buy new cars on finance because that is the only way they can afford it. Pay for a product (liability) that depreciates as it is being paid for....They could buy a used car but no they want a new car because they believe in reliability and the smell of a new car etc.
Personal finance including budgeting, cash flow, credit and, most importantly, compound interest should be absolutely mandatory classes from age 16. Our generation is going to have real problems in about 30-40 years time.
Totally agree. Except I think that the problems will happen sooner than 30-40 years from now!!!
Yes, and a big part of that problem is the fact that we're sitting in a 0% real interest rate environment with extremely high volatility in the equity markets and increasingly unattainable real estate in major metropolitan areas.
Not complaining by any means as it is what it is but it's certainly not an environment for immense financial success like it once was. Compound interest of 0% is still 0%.
I agree with you, but that, at least in my opinion, is not a driving factor for these people. If your expenses are greater than your income, interest rates don't really matter. If anything that could help because it would reduce the cost to obtain credit. I have always been amazed that people, including our federal government, cannot see the fundamental issue with consistently spending more than you make.
I do see your point about housing, but I think sometimes people need to understand that you can't always afford to live in a city you would like and need to move to a new area of the country to survive comfortably. The author is a writer- I assume that he works from home and thus could move to the middle of Montana where COL is much lower than the NYC area.
Exactly. The amount of "smart" kids at my college that had (many still have) no idea how a credit card works is crazy.
completely agree smokin bro frazier, but I think you're only scratching the surface.
in the US, personal finance classes are being taught, and though not to EVERYone, the information is out there for all to learn. what I believe is the root of the problem is not ignorance, but BEHAVIOR.
personal finance up to this point merely describes how things like investing work, what debt is, how credit cards work, how mortgages work, and what various types of investments are.
what they seldom talk about is the most important thing about personal finance: LIVING BELOW YOUR MEANS. you can be the biggest expert on credit cards, mortgages, compound interest, but if you buy a house that's 4x your pretax income, have $30k in credit card debt and only make minimum payments, you're financially retarded.
personal finance needs to change. the problem is kids spend 100% or more than they make, and the tough conversations are not happening. I remember this vividly, my senior seminar class went something like this:
prof: the avg salary for this major is $30,000 in the southeast, maybe 50k in a big city like SF or NYC (remember, I was social science/humanities). after taxes, that will be about $900 twice a month.
students: nice! I can afford a nice studio on $900 a month
prof: ok, let's go with that. now what's 1800 minus 900? (remember, humanities, I was the only one who could do calculus so arithmetic was a challenge to these idiots). what kinda car do you want?
students: Mercedes!
prof: OK, the new C class leases for about $350 a month. so now we're down to 550 left in the budget. what other things do you need every month? (no one has mentioned car insurance, renter's insurance, groceries, or student loans)
students: I gotta have my birchbox...
when really, it should go like this:
prof: the avg salary for this major is $30,000 in the southeast, maybe 50k in a big city like SF or NYC (remember, I was social science/humanities). after taxes, that will be about $900 twice a month, or lower middle class, therefore you should live like lower middle class. this will not be easy to hear, but you must abide by these tenets lest you file for bankruptcy before your 30th birthday...
if you can live affordably close to work, take public transit or bike. if you must buy a car, do NOT buy a new car, buy a honda civic with over 100k miles on it and only drive it to and from work. exercise at home, learn to cook, do not eat out except sparingly. when your friends invite you out, eat before you go and then just munch on an appetizer or something. drink cheap alcohol or nurse your drinks, it's important to be social, but you can do so in a thrifty way. do not buy new clothes, go to plato's closet or secondhand stores of wealthy suburbs.
live outside of the desirable places in your city or live in a teeny tiny place that's in a desirable area, get roommates, live with mom & dad, but whatever you do, PAY YOURSELF FIRST/SAVE! put only the matching contribution into your company's 401k and put another 10% (yes, $90 per paycheck) into cash savings for emergencies. if you have student loans, you should still put some money towards savings, but do NOT ever miss a loan payment. when you get bonuses, use half to pay down student loans or other debt, and save the rest. when you have more than 3-6mos of expenses in the bank, you can start thinking about investing. when you get raises, do NOT adjust your lifestyle as much as your salary, adjust your savings rate. fast forward a few years, you're making 50k and get a new job that pays 70k because you got some certification. live as if you were making 55-60k, and bank the rest. you will have a noticeable difference in your lifestyle but your savings rate will accelerate, and this is the key to building wealth slowly.
your only investments at this point should be clothes for work (and you can go cheap here, jos a bank instead of canali for guys, or better yet, buy nice suits from the thrift store/secondhand, and have them tailored), clothes for interviews, and maybe some tony robbins/dave ramsey/thomas stanley books. beyond that, it's waste. you will take more staycations, learn how to be thrifty, and enjoy the simpler things in life. you will not get rich quick, you will get rich slowly, but most importantly, you'll never have to wonder how to come up with $400 for an emergency.
in closing, I've tried to get involved in my community to teach personal finance, but the charities (namely SIFMA) that do it, have it all wrong. they play the "stock market game" which is essentially organized gambling to elementary school kids. for personal finance, they leave this to the professors/teachers who probably have their own money problems. most financial advisors themselves aren't financially secure, so we'd be a bad population to teach a class. in essence, it's a known issue, but the most qualified people to teach it are under the radar. I'm not optimistic anything will change until our education system changes, and I doubt if a 70 year old candidate with only 300k of liquid assets and 60k of credit card debt gets elected, personal finance education will be a top priority.
Couldn't agree more
What would go a long way is making personal finance classes mandatory in middle/high schools. If the musical appreciation class which no one cares about has to be cut to make this program work, then so be it.
Which would cause a hell storm. This is something that you see in private schooling, however implementing this into must public school districts would only be welcomed with absurd amount of backlash.
Such a terrible article. Can't believe the writer is trying to get us to feel sorry for him.
The author is basically whining about how he got an undergrad degree, also did a master's, married a film exec, bought a co-op in Brooklyn, lives in East Hampton, told his wife she didn't need to keep working, sent both his schools to private school not only when they were growing up, but then sent them to two of the most expensive colleges in the country?
It's basically all his fault. He acts like not being able to pay for his kids' weddings is such a travesty, when having parents wealthy enough to foot the bill and also chip in for college is a huge luxury.
Compared to people who actually live paycheck to paycheck this is an absolute joke.
What an idiotic article.
His argument was that income can't catch up to consumption, without ever once taking ownership for his over-consumption. Typical atlantic article.
I'm stuck on the lazy, spoiled daughters. Look, it's great they went to Stanford and Emory and had fancy weddings, but these are luxury items. The girl in medical school would be in much the same place (and loan-free, perhaps) had she gone to state school, or surely there is a school that would have offered her a scholarship and then entered at MD/PhD program, which are fully funded. The Emory/UT chick would have been just fine at state school, too. Emory is not all that, after all, and last time I checked pretty much anyone could walk into SW school.
Ridiculous. And ridiculous children.
Simply terrible
The middle class didn't used to mean the working class...I don't know when this changed. If you're not able to pay a $400 surprise payment, you're not middle class - you're working class or below.
"You wouldn't know any of that to look at me."
This is the beginning and end of the conversation.
It is surprising how weak the connection between income and wealth is. I've seen clients earning $300-400k who have to wait to payday to scrape together a few grand. In general, people focus too much on revenue, not on expenditure when examining wealth. Excluding the mega-rich to whom expenditure isn't an issue, everyone wealthy i know lives incredibly frugally.
I remember when my GF first left school, she got a job at a financial planning office. The owner used to drive an expensive sports car ($300k at a guess), but was constantly receiving final demand notices for basic bills. In contrast, the clients, who would often have networth in the low millions (
Ha, I drive a much more expensive car than the billionaires/mega millionaires I work for. There is truth to what you say. At the same time, come on. If your wealth is producing 7+ figures in annual revenue then you should be doing better than a POS car. Have some self respect.
Having mandatory financial literacy training would be helpful, but I'm not sure to what extent. Just like with diet and exercise, all of the information is out there, but information =/= action. If you were really serious about getting your finances in order you'd take the time to learn about it through the millions of books and sites out there. The problem is people just don't care enough about it to want to learn (and to be fair, learning about 401ks and credit cards isn't the most fun thing in the world). A friend of mine for instance threw financial training seminars for free around campus but very few people ever showed up, despite him getting a long list of "interested" people.
Honestly, I don't think teaching personal finance in high school would help a lot of people. It's a boring topic that most people don't care about until they have to deal with it, so teenagers would likely forget about it before they could use it.
Instead, you're betting off teaching people more math. If you can't understand and solve exponential functions, how can you really understand compound interest? Having a greater understanding of math allows people to understand financial topics much easier when the time comes, and reduces the risk that someone will be "overwhelmed" by the information and just ignore it all.
There's data to support this line of thought, recently posted on Marginal Revolution: http://marginalrevolution.com/marginalrevolution/2016/05/numeracy-incom…
This is also purely anecdotal, but my friends who studied CS / math are doing far better from a personal finance perspective than the ones who got business degrees in something like Marketing. Part of it is pay, but even the ones in grad school making dirt are pretty financially okay. Not great, but okay.
Also, I know some people on WSO might counter that "they never did that well in math," but you're also likely financially literate, which does require some basic knowledge of math and related numeracy.
I'm not sure I agree here. I think that personal finance issues arise from behavior, ignorance, and apathy; not a functional inability to balance a checkbook or understand how interest works.
A problem in our country is the expectations people form about what they'll be able to afford as a working adult. You get told for 20 years you can be and study anything, then suffer because you actually can't be everything on a history major's salary.
An anecdotal example: A cousin of mine turned 18 this year and is planning for college. Problem is her parents filed bankruptcy a few years back, lost their house, then afterwards bought an even bigger house. They told their daughter she can go wherever she wants for college despite average grades and not even applying for any scholarships. So now that a 15k/semester bill is on the doorstep, they want help. We gave them help, we told her to apply for a job, apply to some scholarships she qualified for and could get, consider going to a community college for 2 years, and live off campus for cheaper (lets ignore the IB hopeful advice of going to the best place you can, she's going to be lower end on the community college spectrum).
Nope, not having it, would rather sit on 100k worth of debt in 4 years for the "full college experience". Meanwhile the father bought a new Equinox because he got a big promotion at the grocery store. Some people want things and do not care how they get it; they WILL get it. Not heaven nor hell can stop them from crashing and burning.
I think the education part of this problem isn't in understanding budgets, but in personal responsibility.
The success of companies like Apple is built on failed personal finance stories like this anyway. How many people out there have an Iphone and are on food stamps?
This sorta reminds me of everytime I'm staying in a hotel and the maids are cleaning the rooms. They are on their phones the entire time (in Spanish) and making the room with the other arm. Who the fuck are these people talking to all day?!? Same thing for these annoying cab drivers.
LOLWUT
Love it when people act jealous of poor people.
also gas station attendants
Every case of this I've seen it's been about overconsumption relative to income - I know, I've been there and almost went BK prior to 30 chasing some silly dreams and spending too much. (Doing much better now and debt free). Another issue is that financial difficulties and bankruptcy don't have the same negative social stigma they used to have. People have been conditioned to see a Mercedes and think the person is successful even if they can't pay bills, while someone with a Ford is cheap even if he has 2M in the bank but never flaunts it. In the case of debt "servitude", the own worst enemy is the one in the mirror.
Ya know, but here's the thing, I've noticed that a lot of wealthy people are downright cheap. I look at myself. When I was fresh out of college I was generous with my money despite not earning particularly much. The higher my income has gotten the less generous I am and the more "cheap" I've become--I'm conscious of it so I usually push back against it. But honestly, there is a middle ground that a lot of people fail to hit. If you've got millions of dollars and you're clipping coupons then you've got some sort of mental issue that you probably need to deal with. If you've got millions and/or a high income and your wife is driving an unreliable car because you're too cheap to get a newer model, then you've got issues with your character. If you've got millions and are shopping at Good Will then you're just a person of low class, despite your economic situation. The high earners who bring a can of beans to the office for lunch are just an embarrassment.
So my larger point is that the middle ground between excessive consumption and being cheap is a tough balance, and a lot of wealthy or high earning people are just downright ridiculous. I think that being wealthy and cheap is as acute a character flaw as being middle class and excessively consuming.
How on earth is spending well below your means a character flaw? Excessively consuming is a character flaw because you are putting the burden of your existence on someone other than yourself - creditors, the government, your family, etc.
To me your comment is part of the issue. Who cares how much someone makes and how they spend it? Is Buffett a failure since he doesn't live in some mansion? I make decent money but still enjoy a good-will trip because you never know what your going to find. Do I buy my work clothes there? No, but a good party shirt, hell yes.
I think that someone who is well off and frugal is much much much better than anyone who spends more than they make.
I think that it is just like high school - nothing changes. People want to fit in, but the lower down the income bracket you are, the more you have to stretch yourself to make it happen and it keeps getting harder and harder as time goes on.
Also, I always find it hypocritical when all these people don't chase money in finance yet they only think about it and decide to be starving artists
There's so many people that make 35-60K who love to live like they're making 100K.
Some people really believe that if you lease a BMW 5 series and rent high end apartments while living paycheck to paycheck they are more well off than the person making 45K a year who drives a used car that's paid off and lives in a modest apartment that makes up 18-20 percent of their income while having savings.
There's a lot of good content on this thread. Just to chime in my 1 cent, I'll say it's both personal responsibility and education. I had a friend that worked as a bank teller through college. She was able to learn a lot about retail/consumer bank products (financial planning, checking/savings accounts, credit cards, etc.). She used the knowledge to learn how to wipe her credit history, improve her credit score, get perks from the aforementioned products, and overall enjoy some good financial planning. She did a good job of educating herself once she had this job. Then we graduated and she ended up with crazy credit card debt because she ended up spending more than she earned by using these new credit cards she had taken out. Once again, her credit score sunk.
There is definitely a lot of stuff out there people don't even know they can take advantage of to live a more comfortable life without making huge sacrifices. But without discipline, it'd be easy to end up falling flat on your face from all of these products especially as they get more and more sophisticated. First people need to do the research/learning in order to find alternative ways to do as much as they can handle, then execute with sound financial planning and discipline to avoid pitfalls and setbacks.
I will also say about the anecdote about my friend, I noticed that she didn't really seem to think about the fact that she needed to be careful while trying to gain all of these perks. She wanted to take out all of these credit cards with the purpose of using them to buy things but pulled a lot of that stuff within such a short timespan that it just became overwhelming. Had she used them for basic needs overtime, she would've did a really good job for herself in accumulating little perks and benefits from using them. I feel like it's the same with everything. Long-term planning should happen everyday because it's not really long-term at all. In the short-term, every decision has an impact on the long-term.
I'm not suggesting anyone go and take out a bunch of credit cards, just that creative financial planning does have to be thought out thoroughly, then executed with discipline.
It really does just boil down to not biting off more than you can chew. Whether it be financial planning or investing. A lot of my friends who are not in finance set up these day trading accounts to "play the market" and all of them got burned, even during height of the bull market.
^ I'll never understand why people trade in cars every 3 years. Pay on the car for another two years and you actually own something.
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