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I’VE READ A LOT of articles about why Americans aren’t saving enough for retirement. Most of the articles lay the blame on our spending habits and the debts we’re servicing.
For instance, some point the finger at the gourmet coffee we buy each morning. Suze Orman says, “You need to think about it as: You are peeing $1 million down the drain as you are drinking that coffee.”
Similarly, others point out we’re spending too much on unnecessary items like vacations, electronic gadgets, lottery tickets and avocado toast. Another article says it’s the new cars we buy. If only we drove a piece-of-crap car, the argument goes, it would be easier to save money.
Shark Tank celebrity Kevin O’Leary says you need to have all your debts paid off by age 45, including your mortgage, if you want a comfortable retirement. There’s no mention in the article of how you can be debt-free by that age.
The message I get from these articles is that it all comes down to the battle between wants and needs. Is that really the reason Americans aren’t saving enough? Is it simply that we can’t control our desire to piss away our money on items we don’t need? That strikes me as a simplistic answer to a complex issue.
Could the problem, instead, be the high cost of health care, housing and a college education? How about adding stagnant wage growth to that list? According to Pew Research Center, the average wage has about the same purchasing power today as it did 40 years ago.
Indeed, why do these articles blame individuals for being poor savers? Perhaps because it’s easier to blame them than find solutions to these far more vexing economic problems.
The government collects information on consumer spending, so we can get a pretty good idea of how typical Americans spends their money. Are they living the good life by overspending on unnecessary items? Let’s take a look at what the Bureau of Labor Statistics’ 2017 consumer survey found.
According to the BLS, average household spending in 2017 was $60,060. If Americans were irresponsible spenders, the following three items would be a good indicator:
In other words, these three discretionary items account for only 14% of total spending, or just a third of what’s spent on two of the most critical items: housing (33%) and health care (8%). It doesn’t look like Americans are irresponsibly spending their money on eating out, clothes and expensive distractions (and, remember, we all need food and clothes).
The second biggest budget item, after housing, was transportation at $9,576 a year, or 16% of total spending. This includes purchasing a new or used car at $4,054 (7%) and gasoline at $1,968 (3%). Also included is insurance, maintenance, public transportation and finance charges. Again, it doesn’t look like typical Americans are foolishly spending their money on luxury automobiles.
I understand there’s always room for improvement when it comes to spending. Yes, if we’re to save enough for retirement, we need to live on less than our income—and that means making short-term sacrifices. But a lot of these personal finance articles would lead you to believe the main reason Americans are poor savers is because they’re constantly buying things they don’t need. I’m not buying it.
Dennis Friedman retired from Boeing Satellite Systems after a 30-year career in manufacturing. Born in Ohio, Dennis is a California transplant with a bachelor’s degree in history and an MBA. A self-described “humble investor,” he likes reading historical novels and about personal finance. His previous articles include Not as Advertised, A Fine Example and Building Wealth. Follow Dennis on Twitter @DMFrie.
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I’m 63 years old and grew up in a blue collar, single income, 4 child household. If I lived the way my parents did in that situation, I could have supported three households during my working years. Count up the number of telephones, appliances, televisions, and tv/internet subscriptions in you household and tell me you’re not spending more than you need to.
Lets think about housing and transportation, 49% of spending. Do you really “need” that big house, or would a plain 3/2 be enough? How about that new Suburban? Wouldn’t a reliable 4 yr old used car get you work just as well?
I suggest that many, if not most, houses and cars are bought to impress neighbors, coworkers, relatives and others, instead of to fulfill the basic requirement.
At least where I live the only houses being built are big houses.
It is just so much more lucrative for construction companies to
build those than starter homes.
So if someone wants a house, they have to buy the bigger house
that they may not want. Or wait for a smaller house to come on
the market that someone already owns. Which may never happen.