Americans seem financially unprepared. According to an American Psychological Association survey, 72% of Americans say they’ve felt stressed about money at some point in the last month. Meanwhile, as many as 50% were so stressed out they admitted to not being able to sleep.
Is that you? Hope not, because this is Financial Samurai! If so, please read every single post on my site before spending your next buck.
I also found a Federal Reserve survey monitoring the economic well-being of U.S. households. The survey reports that 46% of adults claim they either could not cover an emergency expense costing $400, or would cover it by selling something or borrowing money.
Hmm. Did the Federal Reserve only survey the most impoverished communities in America? Surely many of you can go to the bank and withdraw $400 to pay to fix a leaky window, a burst pipe, or a tow truck. If not, there’s always the Bank of Mom and Dad.
The Fed says the 5,600 survey respondents were selected at random. But I’m highly doubtful given the median household income is roughly $68,000 or $5,666 a month.
Alleviating Consumer Anxiety About Money
Despite a bull market in stocks and real estate, there does seem to be some growing consumer anxiety around having enough control over their personal finances. As a result, Capital One, one of my supporters, is leading an effort to redesign the banking experience and inspire a new era of confidence when it comes to people’s relationship with their money. If you are feeling financially unprepared, Capital One can help you.
They’ve launched a Banking Reimagined 10-city Tour and recently stopped by San Francisco. Each participant visiting the tour will be invited to go through an interactive session that will help uncover the financial behaviors that best match their value system. The experience includes:
- Advanced Interactive Touchscreens – 9 Multi-Taction Touchscreens spanning 22’ wide and 5’ tall that allow up to three people to interactively scroll through values and goals, giving you an understanding of how your outlook shapes the way you view your money.
- HoloLens Augmented Reality – Interact with 3D holographic imagery in real space and time, bringing your financial goals to life.
- Video Selfie Booths – Participants can record a message for their future selves with the knowledge they’ve gained from the experience. I’m going to remind myself to never stop grinding!
Sounds like fun, especially since our torrential downpour of rain will have abated by then! I’ll update this post with some pictures of my experience right after I get some Dungeness crab with melted butter.
Finally, in addition to Capital One’s Union Square Café, they’re also opening up another Capital One Café in Walnut Creek in the East Bay. If you’ve never been, it’s a chill place to grab some food and drink, lounge around, and seek financial help.
They’re offering complimentary Money Coaching sessions by appointment. I’m going to go through one and report back my experience in a future post. Anytime something is free and has the potential to help readers achieve financial independence sooner, I’m all over it.
Financial Samurai Reader Demographics
Below is the Financial Samurai reader demographic survey based on over 80 polls I’ve conducted over the past four years. My #1 goal is to help as many people as possible reach financial freedom sooner, rather than later. I don’t want financially unprepared people.
It’s interesting to see the numbers compared to nationwide medians and averages. Are people getting wealthier reading personal finance sites? Or do wealthier people have a higher proclivity for reading personal finance sites? I’m sure there’s a mixture of both. But one thing I do know is that any of you who’ve been taking my advice since 2009 should have seen your net worth more than triple since!
Specific Demographic Data
* Age: 76% of you are between the ages of 26 – 45. 11% are under age 26. 13% are over 45.
* Annual Income: 51% of readers make over $100,000. 33% of you make between $100,000 – $200,000 a year. 18% of you make over $200,000 a year, while 17% of you make between $75,000 – $100,000 a year. 3.3% of you make over $500,000 a year, the level which I consider to be the definition of rich.
* Value Of Primary Residence: 39% of you said your apartment or house is worth between $250,000 – $500,000. 28% said your apartment or house is worth between $500,000 – $1,000,000. And 9% of you said your apartment or house is worth more than $1,000,000. Most homeowners have refinanced at least once over the past 10 years to take advantage of record low interest rates.
* Retirement Savings: About 19% of you have saved over $1 million dollars for retirement, excluding the value of your primary residence. Another 18% of you have saved between $500,000 – $1 million dollars. While 38% of you have saved between $100,000 – $500,000.
* Social Class: 67% believe you are part of the Mass Affluent Class followed by 20% who believe you are Middle Class.
* Education: 62% of you went to public university while 29% of you went to private school with grants or scholarships worth at least $4,000 a year. Roughly half of public university attendees got grants or scholarships worth at least $2,000 a year.
* Debt Levels: 52% of you have $0 consumer debt outstanding. While 22% of you have less than $10,000 in consumer debt outstanding. 36% of you have total debt outstanding (mortgages, credit cards, student loans, etc) between $150,000 – $500,000. 15.5% of you have no debt of any kind.
* Net Worth: 35% of you have a net worth of between $300,000 – $1 million. 23% of you have a net worth over $1 million. 80% meticulously track their net worth with today’s free tools.
* 401k/IRA Savings: 21% of you have between $100,000 – $200,000 in your 401k or IRA. 25% of you have between $201,000 – $500,000. 17.5% have over $500,000.
* Ideal Income For Happiness: 14% say you need to make $101,000 – $150,000 a year to feel “very happy.” 22% say $151,000 – $250,000. While 52% of you need to make over $250,000 a year to feel very happy.
* Savings Discipline: 15% of you save between 11% – 20% of your after tax income each month. 18% save between 21% – 30%. 28% save between 31% – 50%. While 23% of you save over 50% of your after tax savings.
Are You Financially Unprepared Or Prepared?
Please take a moment to fill out this simple poll regarding whether you can pay for a $400 emergency expense without having to go into debt or sell something. My guess is that only 15% of you will say you can’t cover a $400 emergency expense compared to the 46% nationwide average. What percentage do you guess?
Financial Samurai readers hail from all 50 states, all ages, all races, and all incomes. I believe we’re as good a representation of Americana as any other survey. Perhaps I’ll see some of you at Pier 39 this weekend!
The Benefits Of Debit Cards Over Cash Or Credit Cards
Confessions From An Angry Retail Banker
A Peek Inside A Celebrity’s Income And Spending Habits
The best way to grow your net worth is to track your net worth. Don’t be financially unprepared. I’ve been using Personal Capital’s free financial tools and app to optimize my wealth since 2012. It is the best free money management tool on the web.
Just link up all your financial accounts to measure your cash flow, x-ray your portfolio for excessive fees, calculate your retirement income, and more. There’s no rewind button in life. Therefore, you need to do your best to optimize the wealth you have now.
Readers, do you believe that ~46% of Americans will have trouble coming up with a $400 emergency expense? If so, why do you think this is given the median household income is ~$56,000? How large of an emergency fund do you keep? I’ve usually got at least three months of living expenses on hand. If I need more liquidity, I’ll just sell some public securities. Thank you Capital One for sponsoring this post!
Man you rich people are totally isolated from the rest of us. There are whole counties in the US of poor people on dope, life expectancy is going down, empty houses collapsing, roads falling apart, schools closing. Come to McDowell County, WVa. I’ll show you thousands who couldn’t come up with $40 let alone $400. Or short of that, read “The Gilded Rage” and get an idea what this country is now like outside of NYC, San Francisco and your holiday homes and yaught clubs.
Financial Samurai says
Sorry things are tough for you Joe. Keep the faith! You may enjoy: Focus On Trends: Why I’m Investing In The Heartland Of America
Terry Pratt says
Welcome to Two Americas, where each one is clueless about the other. Guess this is my ONE comment for today.
I hate to tell you, Joe, a lot of areas of these cities are just as bad. But more expensive. Trust me. Read about conditions in public housing and minority neighborhoods in big cities.
ARB–Angry Retail Banker
If there’s an American Pol Pot in the making, and I truly believe there is, he won’t come from the urban ghettos that have been hell holes from their origins in the segregation, redlining and white flight of the 1950’s and 1960’s. The American Pol Pot will undoubtedly emerge from the tinder kegs smoldering in the formerly prosperous Rust Belt where society is literally falling apart at the seams in process that is much more recent.
Take away a man’s bread and you leave him hungry. Take away a man’s ability to bake bread for his family and you leave him furious.
Financial Samurai says
That’s some deep stuff Joe! I like it.
I believe in the rust belt, which is why I’m investing. Valuations are just too cheap to ignore and I believe there is upside due to technology, mobility, and prices that are just way too expensive elsewhere.
You can buy houses in my hometown for 9,000 now. Even though they rent out for 800 a month (because no one has 9000 saved up, and no banks will do a mortgage for less than 50000).
But for me it’s not worth it. I don’t want to control a man’s home. I wouldn’t want to throw him out into the streets because he can’t pay. And he can’t, because the closest work to town is now a Walmart, which is 45 minutes away by car and only pays $1000 a month.
Even if I did want to kick him out, by law it would take six months of court proceedings. And in that time he’d probably destroy the house.
This kind of thing is why 100 year old houses are left to rot and collapse while people are living in their cars.
This is the Rust Belt in the richest country in the history of the world in 2017.
Absolutely, Americans are financially unprepared. One statistic that I’ve quoted on my blog a few times is that 7 out of 10 Americans don’t have an emergency savings account. Not that they don’t have enough to cover X amount of expenses, but they don’t even have an account!
One thing you have to realize, Sam, is that you can’t use the median gross salary and Financial Samurai readership demographic (a group with much higher earnings power than most) to get an accurate portrayal of the average American’s earnings. Just because the median is around $50,000/year doesn’t mean that half the population is making more and the other half is making less. I have a feeling that WAY more people are making below the median salary than above it. Whether that’s the fault of those people, society at large, or whoever else is a different conversation altogether.
But yeah, it is sad, scary, and a bit hard to believe that so many people in one of the most prosperous nations in the world can be so close to destitution.
ARB–Angry Retail Banker
Hi Sam, great post and this hits home. I may have asked this before but in my case I have a pension and it’s not always clear to me where I account for it in net worth (or not?)
From 55-62 it’s $43K a year. From 62 and on until I expire it’s $36K a year (no COLA). Can I assume if I go down to John and Sally’s annuity shop and it would cost ~ $625K to get the same income stream I can add that to my net worth?
Thanks in advance. Cheers.
Financial Samurai says
Check out: How To Calculate The Value Of Your Pension
Also feel free to use the search box for any questions you have. I think I’ve covered almost everything. Thx
Thanks!! I’ll check it out!!
I could collect $400 in cans if need be, that’s pretty sad….
Right on point. I have been in that situation for years – strugling when starting a business, and making around $700 a week – I then bought a brand new BMW with monthly payments of $800 a month – for the next 5 years! Back in that time, I didn’t realize how stupid it was, and on top of that, I had no savings. I was part of that 46%. Driving a new BMW but putting the cheapest parts when the time came to service the car.
I ended up changing my mindset and business started booming. When I became a millionaire, it became even more obvious, with my staff spending almost all their income on superficial stuff that they didn’t really need – to find out that they had virtually nothing left at the end of each pay period.
I would blame this on the consumerism mentality with encourages people to spend every dime they have on things to impress people rather than saving intelligently, investing, and creating wealth.
David Wendelken says
We rarely have credit card debt.
Occasionally we spend a lot one month and choose not to draw down our savings to pay it off right away. Instead, we just tighten our belts and cut our spending way back until we pay it off over 2 to 3 months.
Mathematically that’s not the optimum choice. But if we don’t feel the pain, we don’t reinforce the need to keep our spending in line.
I was very well prepared financially. During my PhD, I gathered a lot more than most of the folks would imagined. Then our son was born, with special needs. There went all my financial preparedness. US medical system successfully bankrupted me. Within 8 years, from well prepared to living paycheck to paycheck..
Financial Samurai says
Oh no! I’m very sorry to hear this. Did you have insurance during so that insurance could at least pay for the large majority of the costs? Hearing how our medical costs are hurting us is so, so disappointing in this great country of ours when this would definitely not of happened in other developed countries.
I definitely am on the lower end of all of those polls. I’m younger, I make much less, don’t own a home, have student debt, the list goes on. My wife and I together have a very small net worth, which fortunately is no longer negative. Currently, it will take years for me to get to some of those lists, but I think the people who are simply conscientious of money and where it goes end up richer. I have many friends who simply don’t budget well and they make up the demographics of having no emergency funds.
FinancialSamurai becomes one of those places where I can experience people who are better off financially than my family, and hopefully those experiences will rub off onto me and how I handle money.
Financial Samurai says
Christian, the great thing about starting off small is that there’s NOTHING BUT UPSIDE! I always think this way when I’m first starting out at anything. Being the assistant varsity boys tennis coach at a high school is as close to as bottom as things go. But I know that if I work hard, develop good relationships, and inspire the kids, I will be asked back to work another year. And after maybe 3-5 years, I might get a promotion. I don’t expect anything except to work hard.
The Money Mindset WILL rub off on you, and you WILL get into the money mindset if you read, interact, and practice long enough.
Reading through the posts and my favorite comment is by the 140k a year guy complaining about how the 25k a year employees are always in some sort of a financial ;)
I’m not sure I understand whether you were agreeing with me or think that it’s not my place to judge them due to the wide difference of our incomes. To clarify my point, I was commenting on the poor day to day choices they make with the money they have. Yes, I make much more than they do, but I still spend much less on meals, transportation, etc.
Financial Bounty says
First off, I LOVE that FS reader demo statistic – 52% of you have $0 consumer debt outstanding!!! That’s awesome!! I totally believe the statistic. It matches the other statistic that in Mar 2016 the average household debt CC debt is $16,048, an increase of 1.16% from the month prior. So that would make the debt/income ratio of 28%. Yikes….those CC min payments have to be catching up to people.
Personally, I keep 3-6 mths worth of expenses. I would even advocate greater then 3mths emergency fund, if you are in an industry fraught with churn and M&A.
ZJ Thorne says
I believe the statistic. I used to date a CPA and she made 80K a year and I was fresh out of school and made 20K that year. She was so terrible with her money that I had to loan her 1000 for an “emergency.” She did not pay back according to our terms either. Late payments. I was so angry at her for being so irresponsible. She was angry at me because I did not care that she drove a fancy car. Our relationship did not last long after her borrowing the money.
It seems most Americans buy things on credit and save almost nothing. According to several sources average American has less than $1000 in savings which is alarming.
Compare this to Chinese or South Koreans who save each dime and then you get to wonder how they pay big investments like real estate with cash.
58% of my net worth is in cash right now earning just below 1%– ironically my biggest worry is not a $400.00 emergency but that I’m losing money to inflation. I’d like to invest more in the stock market but it seems dumb to invest at record highs. I know the wisest thing is to never time the market and just buy and hold, but man I just can’t get myself to do it with Trump there and stocks being so expensive. Maybe one of you smarter guys or gals can convince me to just pull the trigger. This is the kind of shit I lose sleep to, I can’t imagine how people live knowing they couldn’t come up with $400.00 if they needed it….. yikes.
Why don’t you at least buy some bonds if you can’t bring yourself to buy stocks?
When you have a strategy and have been following it for a while, it can be ruinous to change it. If you went more into stocks and bonds now and both corrected, you just might wind up 100% invested in cash.
You should probably commit to investing more when the conditions to invest meet your criteria. By definition things “may not look good” at that point. It is at that time, that you will need to have discipline.
Start simply by buying a little bit at a time. The Vanguard fund – VWELX – is cheap in terms of fees, 0.26%. It is basically 2/3 stocks and 1/3 bonds. Every month try to take your savings and put 20-30% into it. Of course, before you do any of this, make sure to separate your cash into two piles: 1- emergency fund (not to be touched, 6-18 mos, depending upon your needs), 2- investment cash ($ sitting around that you are scared to deploy but are more than needed for emergencies).
Another good trick I learned is to calculate how much you would lose if the stock market drops by 50%. For ex, if you have $100k in cash and you put $25k into VWELX and the market drops 50%, you will have ~$17k in stocks, so you will only be down $8k (and only if you sell). If you are planning to hold for 20+ yrs, who cares? In fact, you will be so excited because now you can buy more stocks for cheap. If you are over 60, you need to be more conservative, but even then 50/50 stock/bond will be ok for most people.
Note this only works if you buy the “entire” market (S&P, VT, VTI, VWELX, etc) or several 100 diversified stocks. If you put it in one company, like GOOG, this plan completely fails, because when the company drops, you have to figure out if it is the company that is going to fall or emotional. That is tough even for the guys at GS, almost impossible to do this on your own!
Dollar cost averaging is designed to buy high and low and take timing out of it. Pick a number and put purchasing on automatic. You might buy high now, but you’ll ride anything that goes up and you’ll buy when it goes down. But not getting in at all will lose money either way.
I think the 46% is wrong, being misinterpreted, or both.
47% of people indicated that they could cover 3 months of expenses from an emergency fund. And of people who experienced a financial hardship (lost job, health emergency, etc) of presumably more than $400, only 16.5% used high risk borrowing.
Those 3 numbers just don’t go together. Something smells off.
Financial Samurai says
So the question is: why does the Fed/gov’t make things so hard to understand? Why does the Fed/gov’t/media try and make it seem like things are so dire in America?
Once folks understand the why, things realize there’s a lot of smoke and mirrors.
I think, if I’m reading correctly, the question was asked “how would you pay for an emergency of $400?” Which leaves things open to more interpretation. It isn’t that people COULDN’T pay cash for an emergency, but that they WOULDN’T.
There are various manipulative reasons they massage data. In this case I think it could be more lazy thinking leading to misinterpretation than deliberate misdirection. This is why I always try to find quoted poll questions, not summaries.
Boocoo Money says
I’m really not surprise to see that 46% can’t cover a $400 emergency. Working in advertising, its my job to create a need out of a want from shoppers. Frankly, its pretty easy because as Americans, we are condition to buy now and save later instead of save now and buy later. Our economy is built to spend money rather then save it. What really shock me is the amount of free education and advice you can get today but yet people tend not to take advantage of it. Do I see this type of behavior changing in the future, maybe. But for now, I don’t see any changes anytime soon.
I also don’t believe that the 46% number is accurate. Something doesn’t smell right. No way that’s a random selection of US adults. Or perhaps the wording of their question was off? Who knows, but I’m not buying it.
I’d also say that the results of your polls definitely reveal some self-selection (this most recent poll says that 99% of your readers could cover a $400 emergency).
Looking forward to your post on the future of banking tour. I’m a fan of CapitalOne; I’ve used them for years. Looks like my city is next up on the tour (after SF) – I’ll see if I can’t get down there and then we can compare notes!
At some level I do think that statistic is correct. What galls me to some extent is that $400 comes from the Atlantic article where the author lives in a home in the Hamptons, sent his children to private schools that he paid for, and he didn’t follow the basic #1 rule of personal finance to pay yourself first. I have a lot of sympathy for people who live on or below the median income, but forgive me if I don’t have a lot of sympathy for his situation. That said, financial literacy is so much more needed in this country.
I think most people that read your blog are financially savvy people. Or people who are trying to learn to be financially savvy like me!
I don’t know how people live paycheck to paycheck. I have always had savings even as a broke college student. And when things were dire I only spent on the basics. But I learned one of my previous coworkers was/is living paycheck to paycheck. She has a combined household income of $200K a year at least. And somehow every single dollar is being spent. She’s in her 50s, no retirement savings, massive debt, student loans, car loans. It was so astonishing.
I’m actually inclined to believe that 46% number. I think that we are just biased as financial bloggers and readers of PF web sites. The average person doesn’t live below their means. They are also unlikely to be debt free and instead may be carrying multiple obligations at the same time… credit card(s), student loans, new care, mortgage, etc.
I imagine I am in the bottom 1% of your readers. I make about $30k per year and struggle to keep $1000 in my emergency fund. I am 43, have a college degree from Berkeley, and work in restaurants because I have not been able to get a decent job since the last financial meltdown. I live in the Sacramento area which I think is part of the problem. Jobs here are scarce and entry level jobs don’t tend to pay more than $14 to $16 per hour. After taxes that is way less than I make at the restaurant.
I read FinSam to gain insight into how to do things correctly. I follow as much wisdom as I can, but in the end I always come back to my real issue: not enough income. I have about $14k in student loans, no credit cards, no car payment, and a very tight budget. I don’t have cable, don’t smoke, don’t eat out, and I still have a hard time saving money. I have about $20k in investments, own a property in the Bay Area worth about $200k that I rent out (mortgage=$140k.)
The entry level job may pay way less than restaurant work to start but if there is growth potential, in a few years time it may pay way more.
Thanks for the reply. You have a point, and I’ve become more open to such jobs. I’m trying to be selective about taking one so that I will have upside potential. I’ve even looked into apprenticeships where the pay raises are automatic based on tenure. I have had no luck yet, despite applying with 4 apprenticeships (I always score really highly and do well in the interviews at the hall, but there are no jobs to place anyone into.)
Financial Samurai says
Go Bears! First of all, great job not having any revolving credit card debt. So many people dig themselves in a hole b/c of CC debt and can’t get out due to usurious rates.
With $20K in investments and a property you’re renting out, perhaps you aren’t doing as bad as you think you are?
The income issue is the biggest problem. Do you have skills you can offer to tutor/teach after work? Perhaps do some gig economy work? Have you started your own website to brand yourself to attract side hustle work? Perhaps look for a job and get an offer in the SF Bay Area, run the numbers, and see if the benefits outweigh the cons? How many hours a week are you working now?
Thanks for the reply Sam. And yes, Go Bears!
I appreciate the encouragement, but I think only $20k in investments is pretty far behind for someone my age. My two closest friends from high school have at least 5x that, but I try not to compare myself to them since they both stayed in sales and I loathed sales.
This part is going to make you mad, and I agree I need to change it, but right now I only work about 25 hours a week, and some weeks less! Part of the issue is I’m a natural introvert, and waiting tables can be stressful at times, so if I can live on three or four days a week that’s a break from having to be “on” in front of people.
I have considered tutoring, but it would have to be before work or days off since I get home around midnight. I would like to tutor in math. I’ve considered doing what you’ve recommended and drive Uber (sorry, but someone else referred me.) My friends who’ve done it in Sacramento say it’s not very lucrative, but who knows. What I really want to get started on is a blog. I love tinkering with the web and I’ve made some basic sights in the past. I’m just not sure I could come up with great content on a regular basis. As far as regular jobs go I do apply weekly to various industries with the hopes of getting a foot in the door.
I like your ideas and I thank you. I need a good kick in the ass I guess.
Philo – can I suggest taking a public speaking course? Not so that you can become a motivational speaker but to increase your confidence level. I hear a lot of doubt in your posts. From personal experience I can tell you that you can overcome. However, it will take hard work and a commitment to earning more.
I would set a goal that you should get 2 side hustles to bring in a few more $ and to 1 thing that could lead to something more lasting. I know you can do it!
Highly recommend you sign up for the Dale Carnegie course. It helps people with public speaking, google for your local chapter or read How to Win Friends and Influence People (horrible title, great book).
There are several free links to the pdf on google.
Also, definitely hours worked is critical. I have been working in the 80-100 hr range from the time I was about 23. Now, I still work 80 hrs but I focus on doing things I love that make money, so it doesn’t feel like work. However, most of the time, I was doing things I didn’t like. That’s the only way I know to get ahead in the beginning.
Thanks Rutley. You are pretty insightful. I always considered myself fortunate because I got out of Cal before they required a public speaking course like the state schools! Not sure how you gleaned that from my posts, but I’ve always dreaded public speaking. It’s gotten a little easier over the years, but I probably should just take a course. Thanks again.
Financial Samurai says
You are right. $20,000 in investments is not a lot for your age, but that just means you’ve got a lot of upside.
If you work only 25 hours a week, that means your $30,000 is really worth $48,000 a year based on a “normal” 40 hour work week. Hence, not bad, given you’re living in Sacramento!
The way I see things for you, it seems like you’ve got a lot more time to hustle and make more money if you really, really want to.
The idea of having your own site is to not build a blog like this one. But to brand yourself online and make yourself more searchable to prospective customers in whatever field that interests you most. You can of course write 3X a week like I do here, but you’ve got to stay disciplined and really love your topic. Plenty of introverts run a website. It’s the perfect introvert activity actually!
Sadly, I believe that this number is true. I have many employees in this situation. A few of them have gone from making ~$10-14/hr to ~$20-25/hr in 3 yrs due to good work ethic (I’ve given one a 200% raise in 3 years). Yet, on a personal financial basis, I cannot get them to save or invest even a dime. Therefore, they go from crisis to crisis and I typically step in and give them 0% interest loans or other subsidies (typically no more than $10k per year) to help them out. They used to get an investment lecture on the day that I would disperse the money because I really don’t like to have to step in to do this. However, I have now done away with the lecture. Unfortunately, bad habits have to be changed from within. As they are bombarded with consumerist culture and are unable to think individually and independently from the herd, in some ways, this is not entirely their fault, as there is a human genetic predilection to do what others around you are doing. Furthermore, I know several professionals, who although have $400, do not have anything close to 6 months of expenses in cash and are in their 40s, many of which make more than $200k annually!
For my part, I like to keep at least 2 years in cash, or more, in some instances, mainly because I view cash as a call-option on all investments with no expiration date and minimal theta decay due to inflation (as per Warren Buffett’s suggestion).
Could you explain the last paragraph to me? I keep a lot of cash as well. I want to know what you mean by call option in this case. Thanks!
Sam – I think those survey numbers are right, even though it’s hard for us more financially savvy people to fathom. It’s incomprehensible how terrible some are with money. A few examples from my life:
My retired father works at our church food bank a few days a week. The food bank provides free food to people that can’t afford it based on an income threshold. He regularly tells me about people showing up driving Cadillacs or other high end vehicles and sometimes being accompanied by a few kids each with their own iPhone.
Another family member makes minimum wage and recently bought a $30,000 new SUV and then commented to me that it’s more expensive than my car (which is true, and I pay more fed income taxes every year than her entire income).
I also know a coworker that makes more than I do and lives paycheck to paycheck . . .
My guess is that none of these people read Financial Samurai or any other finance blogs. I think you have to have the mental capacity to make the right financial choices and actually have the desire and interest in following through. Some don’t have the ability but most don’t care, which is why they don’t have a $400 emergency fund.
As fate would have it, I have done well but still have my childhood friend even though I am almost 51. I grew up in working class neighborhood that was anything but affluent. Of those I grew up with, only a couple (maybe 3 out of 20), could pay an unexpected expense of $400 without difficulty. Here are the reason I have seen for this:
1. A lack of ambition. Many get stuck in a low paying job and just refuse to better themselves. “I can’t” is what I hear most from them. I can’t go to school. I can’t acquire a new skill. The mindset keeps them poor. A lack of curiousity on how things could be better.
2. Out of control spending. A friend of mine worked for a large bank in the 90’s (still does)in tech and was making great money. They bought the Mcmasion and expensive cars. I tried to convince him to save $. He never saw the need. I even had to lend him money 1 time. Then supply and demand took hold and the skills he has weren’t that rare. His comp decreased (99 was still his highest earning year) but they still spend like they did before only they have 2 children now. The wife refuses to work. He has actually taken more than half of his 401k out with taxes and penalties to keep up the lifestyle.
3. Those that are unlucky. Bad things can happen to people who are trying to do everything he right way. A lady I grew up with had so many bad things happen to her, that I really started to believe in dark clouds. Makes me depressed to go into details.
I’d be so stressed out if I didn’t have enough in savings to cover a $400 emergency. When I first started working and was paying off student loans I was probably in that boat, but could utilize my credit card if something urgent came up. I think a lot of people under estimate the importance of building up emergency savings to cover at least 3-6 months of living expenses if not 6-12 months. Glad to see the readers here are well above average and financially secure.
I think its time to stop be emotionally blackmailed with reports such as this. Of course this sounds bad, but is it really? First off, if this number is somewhat static over time, then these forty six percenters have made it through their lives living in this way and if it suits them, who am I to tell them to up their game? Having the freedom to live your life means if you choose to go for FI, good for you. But if you want to live paycheck to paycheck, then thats your decision. But these 46%-ers don’t then get to complain later on about the (100%-46%) 54%-ers being rich and having things they don’t. You don’t get to have it both ways. Its time to have a balanced argument here (which the media never does. They just thrive on reporting on “injustices” with little to no balance). The fact is that this country makes the tools available for people to achieve great things and if you don’t take it upon yourself to do that, its on you, not society. I know people that came here with not one penny to their name nor did they even speak the language, and now are very rich, having just dedicated themselves and taken responsibility for their education/career/investments. This is the real story here, that if you want to do it, you can, and if you are not motivated to do so, then its your own fault and just man up and accept your fate.
“But these 46%-ers don’t then get to complain later on about the (100%-46%) 54%-ers being rich and having things they don’t.”
The problem is that they both, 1- do get to complain, and 2- with large numbers, do get to affect policy and force the rest of us to essentially “bail” them out in all sorts of different ways (perhaps not as severe as the bailouts we have to give to the bankers). It’s a bit like that joke about if you owe the bank $100k, it’s your problem, but if you owe them $100m, it’s their problem. Specifically, I mean the fact that since 46% of people have this issue, it’s our collective problem, as opposed to if 3% of people did this, then they would just be out of luck, due to lack of significant representation.
To put it into context as to how horrible money is mismanaged, Bernie’s net worth is ~$800k supposedly on an income of $200k at age 75! I think there are crackheads with better investment skills and I say this as someone who respect’s Bernie’s character.
mercury, thanks for the reply.
I have thought about that exact thing before and its whats on my mind more and more as the Bernies of this country gain a following. The suggestion that the govt will just institute confiscatory measures isn’t that far off, based on “paying your fair share”. Tell me, when i busted my ass and was frugal and saved while others were lazy and uninterested, why is it now on me to “pay my fair share” when I am already disproportionally taxed? If someone in SF puts their capital at risk, recently passed prop W just rapes 5M+ owners (sell a 5M house, be prepared to lose 112.5K transfer tax, which is now going to pay for “free” college for everyone). At the fed level, we just had a $700 stealth tax increase this year in terms of the SS payroll tax whose upper limit increased 10k this year. And this for a Ponzi scheme of a system that they are already talking about paying out 75 cents on the dollar and likely will be subject to means testing (so again, if you were diligent and sacrificed and maxed your 401k, you were dumb, cause that will just reduce your SS, or whats left of it). The AMT and Pease phase outs of deductions on tax returns are yet more of the same. The list goes on and on. My only recourse is just to opt out of this corrupt system. I’m seriously thinking of the GoCurryCracker approach (google for GoCurryCracker & “never pay taxes again”) as a principled position. Luckily striving for FI has provided that option, although its not my preference, once things get bad enough.
Financial Samurai says
Bernie is only worth $800K on a $200K salary at 75? Wow! What’s he been up to all these years during the biggest bull market of all time?
You make a VERY good point that because such a large portion of the population may be financially unstable, the rest of the population will have to help out. Really good comment here Mercury.
Hence, I hope these type of articles help others who are not in financially good shape, to help themselves, so they can help us who are, and help all of the country in the process! USA!
Related: Tax Rates Based On Work Ethic Shall Fix The World
FWIW, I was born in a 3rd world country, came to the US at the age of 3, my parents started on a 1-income engineer salary (which at that time was really low for immigrants, ~$20-30k in early ’80s). They pushed me to educate myself, and over time, I bootstrapped myself up to 1% income and now 0.1% income before turning 40.
Many of my friends seem to think this is because I am some type of genius and/or hard-working and therefore deserve it.
However, it is likely that someone in the town I was born in, without plumbing/electricity, is likely much smarter than I am and works harder than I do, yet will never earn even 10% of my income.
For this reason, although I agree we should focus on sustainable capital allocation plans for the government, so that we don’t go bust, I also have learned to temper any “anger” or “frustration” at those less fortunate. They may be lazier and/or less knowledgeable and/or less intelligent, etc, however, a lot of who I am is because of my parents and/or adversity faced as a child.
If I can give one piece of advice to everyone (not to be patronizing), I would say thank your blessings. We are lucky to be able to sit in our apts/houses and talk to each other today and live peaceful, meaningful lives.
If they increase or decrease my taxes, I will continue to work as hard as possible, because when I get older, I intend to give everything away, hoping that my money will one day get to the next “Elon Musk” somewhere who was not given a chance, so that humanity can move forward to a more logical and rational world. I am ok if 99% of the population squanders the money, because on a biological genetic basis, we are predisposed to act stupidly and think short-term in times of scarcity, which as of today, has been every time humans have ever known. By ok, I don’t mean I think it is great, nor do I think I should just let it happen without giving my opinion to people to change their behavior, but I don’t let it get under my skin daily.
That doesn’t mean I don’t throw a hissy fit every tax season (this year I am paying over $600k in taxes), but I try to limit it to a few hours of bitching a year. If you are making enough money to even know what AMT, don’t forget that someone out there is trying to find a source for water every day! And that someone may have an IQ of greater than 150 and incredible character!
And, if you make even more, eventually AMT will be in your rear-view mirror as well, lol.
mercury, I admire your magnanimousness, esp in reading your reply to another posting about giving your employees advice & interest free loan. However, I have to disagree with the predilection for just following the heard. If so, what incentive is there for people to to ever rise above? Unlike Sam Harris, I believe that there is some element of free will, and people make their own decisions. I can see the utility of charity for those who, through bad luck or other unfortunate circumstances, have things go badly. For those who otherwise live in more propitious circumstances, I think its on them. However, I can see we disagree. In any case, thanks for your contribution here and good luck.
Actually I agree with you. What I don’t agree with is the idea that we can just tell people to work harder. These types of “lazy” mentalities start at a very young age, probably pre-K school. We need a longer systematic fix for these & perhaps more carrots and sticks, even tougher now in the time of emerging AI!
Bernie is only worth $800K on a $200K salary at 75? Wow! What’s he been up to all these years during the biggest bull market of all time?
I bet he has a smoking pension coming tho!
Currently he is at 41% of salary. He gets 1.7% for the first 20 years than 1% after. He’s been in congress since 1990