THOMAS JEFFERSON said, “Honesty is the first chapter in the book of wisdom.”
It’s well known that we tend to believe what we want or what fits our preconceived notions. But this is getting out of control. Here’s what drives me nuts on the misinformation superhighway:
1. “Health care is unaffordable.” There’s no denying health care is expensive and insurance premiums can be a heavy financial burden. And, yes, surveys find that Americans think health care is unaffordable. But what about a day at the ballpark? Is that cheap? Have you ever seen a survey about that?
Nobody, it seems, wants to spend their hard-earned money on health care. They don’t even want to fork over a modest co-pay. We each need to come to grips with health care spending as a regular part of our family budget.
2. “Health insurance is the problem.” Health insurance premiums reflect the cost and use of health care. If the cost and use of health care rises, so too will premiums. Health care costs drive premiums, not the other way around.
The real problem with health insurance is that it isn’t insurance at all. We expect our health insurance to reimburse us for everything we spend, rather than just for extraordinary expenses. That’s not how real insurance works.
3. “Health insurance company profits are the problem.” That’s ridiculous. Those profits have nothing to do with health care costs—and they represent just a small portion of health insurance premiums.
Moreover, most Americans have health care coverage that doesn’t involve insurance, because their employer is self-insuring or they’re covered by a government program. The profit margins for health insurance companies are nearly the same as regulated utilities—in the 3½% to 10% range. When you read that an insurance company has billions in profits, divide it among all the policies in effect and you’ll see the individual impact is modest.
4. “Teachers are underpaid.” It isn’t possible to pay good teachers commensurate with the value they bring to a community or a child. But generally, they aren’t underpaid. Yes, you need to consider their salary. But you also need to consider vacation time, benefits while working and benefits received once retired, notably pension benefits.
5. “Social Security has a surplus.” A surplus implies you have more than is needed to meet obligations. The reality: Social Security has unfunded liabilities in the tens of trillions of dollars. What Social Security has is a reserve—a trust fund that’s gradually being depleted. The reserve, by itself, is sufficient to pay current benefits for about 53 months.
6. “Social Security is going bankrupt.” Wrong again. As long as there are taxes coming in, Social Security can’t go bankrupt. But when the Social Security trust fund is depleted, the incoming taxes won’t be sufficient to pay 100% of promised benefits.
7. “Congress stole the trust fund.” This is a rumor that just won’t die. Nobody stole the Social Security trust fund. It’s invested in special interest-generating Treasury bonds. Last year, those bonds paid $80 billion in interest, which was then used to pay Social Security benefits.
8. “Congress should give retirees more.” There’s a misconception that the annual Social Security cost-of-living increase is determined by Congress or the president, both of whom get the blame when there’s little or no “pay raise” for retirees.
But in truth, the increase is based on the annual change in a key inflation measure, CPI-W. There’s no annual decision by Congress or the president. Many people want to move to CPI-E, which is designed to better reflect the inflation rate experienced by seniors. But CPI-E is no guarantee of a higher Social Security cost-of-living increase—and often the difference isn’t significant.
9. “Congressmen are paid their salary for life.” This is another persistent rumor. To receive a pension, a member of Congress must have five years of service, which means a member of the House of Representatives would need to be reelected twice. A pension is nothing close to full pay. And, yes, members of Congress pay Social Security taxes and contribute toward their pensions.
10. “Members of Congress are overpaid.” At $174,000 a year, which is nearly three times the median household income, it’s easy to feel members of Congress are paid too much. But I’d argue Congress is underpaid.
Think of it this way: You have a good job or run a small business. You have a family. You then win a job in Congress—which you may lose two years later. Could you afford to move your family to Washington, DC? Could you afford to maintain two homes, one in your home state and one in the District of Columbia? The cost of living in the Washington area is nearly 60% higher than the national average. Members of Congress had their pay last increased more than a decade ago. Some estimate that tight family finances compel 50 to 100 members to live in their offices.
11. “Times are different.” Change doesn’t mean loss of opportunity. Rather, it means different opportunities—requiring different strategies to cope. Yes, baby boomers had the advantage of the post-Second World War economic boom. But today’s millennials have the advantage of vastly improved technology and a more open world. Why all the complaining?
12. Assumptions and consequences. It drives me nuts that so few people ask about the assumptions used or the possible—and sometimes unintended—consequences of… just about anything. The cost, or the projected savings from, a new government program can be swayed by tweaking assumptions. Take state pension funds. Assume a higher rate of investment return and the funding can suddenly look a whole lot better.
13. “I can’t afford to save.” As Henry Ford may have said, “Whether you believe you can do a thing or not, you are right.”
Except for the chronically poor, everyone can save. The first step is taking an honest look at where your money goes, especially differentiating between necessities and other spending. The secret is to pay yourself first, preferably through an automatic savings program.
14. “How much money will I need for retirement?” How am I supposed to know? There’s no quick and easy answer, because there are so many factors—and those factors vary with every individual. What standard of living do you want to maintain? How much savings will you need to maintain that standard of living through a long retirement that’ll likely see at least modest inflation? What will your Social Security benefit provide each month? Gather all that information and you can get a reasonable answer to your question.
15. Shopping carts. I’ve saved my favorite gripe for last—and, I’ll freely admit, it has nothing to do with misinformation. What is it that prevents so many people from returning their shopping carts to where they belong? I’ll go out on a limb here and say it’s a reflection of how these folks behave in other areas of their lives. And, yes, they probably don’t believe in facts, either.
Richard Quinn blogs at QuinnsCommentary.com. Before retiring in 2010, Dick was a compensation and benefits executive. His previous articles include Money Pit, Crying Poverty, Shortsighted and Farewell Money. Follow Dick on Twitter @QuinnsComments.