Change Our Ways?

Richard Quinn

MY PARENTS AND grandparents were forever affected by the Great Depression of the 1930s. They shunned debt, paid cash for everything, never invested in stocks and kept their modest savings in the bank, mostly in a checking account.

Following the 2008-09 Great Recession, many Americans also changed their financial ways, at least temporarily. We increased our savings rate immediately after the recession. But a few years later, we returned to our high spending ways.

According to a 2019 Bankrate survey, 28% of Americans have no emergency fund, while 25% have some rainy-day money, but not enough to cover three months’ living expenses. Our retirement savings are no better. There’s still too much reliance on Social Security.

Speaking of which, let’s not forget that the pandemic is going to hurt Social Security’s trust fund. Unemployment and businesses closing mean less money in Social Security payroll taxes, plus unemployment and other financial problems often prompt people to claim retirement benefits earlier. Some predict the trust fund will be depleted two years sooner than expected, in 2032 rather than 2034. That means that—to keep benefits flowing—we may need higher taxes or lower benefits. Congress has been aware of the problems facing Social Security for more than 15 years and has done nothing. Will a pandemic motivate politicians to act?

The pandemic has also caused increased worry about health care costs. Social media is full of concern about workers losing their jobs and with it their health insurance. This has resulted in calls for a special enrollment period through the health care exchanges. But families who are affected should still be able to get coverage: The Affordable Care Act allows folks to purchase insurance upon loss of heath care coverage, even if that loss of coverage results from quitting your job.

There’s also been a focus on Americans who didn’t previously have health care coverage. Some have argued that, since they may face pandemic-related costs, they should be allowed to enroll immediately. It’s here my curmudgeonly instincts come out.

Remember, we aren’t talking about denying health care, but questioning who should pay. Nearly all individuals without coverage had six years to obtain insurance under the Affordable Care Act and yet they chose not to. An unrestricted open enrollment period encourages—and indeed rewards—irresponsible behavior. It’s like buying auto insurance after you drive your car into a tree. The Kaiser Family Foundation estimates the hospital costs for uninsured COVID-19 patients will be between $13.9 billion to $41.8 billion. That tab is expected to be paid from Coronavirus Aid, Relief and Economic Security (CARES) Act funds.

The bottom line: Many Americans are poorly prepared for both expected and unexpected life events. We spend more than we can afford, we carry too much debt and we don’t save. Many are underinsured for health care, disability and long-term care. Only 57% of adults have life insurance.

Will 2020 change our ways? The current pandemic, with its brutal combination of health crisis and financial destruction, should scare Americans into action, so they’re better prepared for future emergencies of all types. To accomplish this would require a change in lifestyle, with families living within their means so they can purchase the insurance they require and amass the emergency money they need. Will Americans make such changes? I’m not hopeful.

Richard Quinn blogs at Before retiring in 2010, Dick was a compensation and benefits executive. His earlier articles include Home At Last, Know Your Demons and Brain Meets MoneyFollow Dick on Twitter @QuinnsComments.

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