Hard to Believe

Richard Quinn

WHAT’S THE REALITY of most Americans’ financial life? It seems that many are having difficulty making ends meet. For instance, 42% of Americans say they’re struggling financially, the highest rate since Monmouth University began conducting its survey five years ago.

If this is true, many Americans are certainly in big trouble. But I think that’s a big “if.” Why do I doubt such findings?

For starters, the result is based on a survey, and people may not be honest in their answers. Ask yourself this: If close to half of Americans are struggling financially, who’s keeping all the businesses selling non-essential goods and services going?

I recently drove a few blocks down the main street of a suburban town. In that short stretch, there were multiple nail salons, beauty salons, liquor stores, fitness facilities and coffee shops, not to mention restaurants, pizza shops and Chinese take-outs. I guess if a smartphone is a necessity, then so is an egg roll. Who’s buying those expensive pickup trucks? Who are the tens of millions of Americans who visit theme parks each year—and sometimes go into debt to do so?

Survey results and spending patterns just don’t match up. I maintain that nearly all Americans can accumulate a modest emergency fund if they wanted to—and yet a Federal Reserve survey finds that just 68% of Americans would be able to cover an unexpected $400 expense entirely with cash. I’ll go further and say if the typical family let me review its credit card charges and what’s in its grocery cart, I’d find significant savings.

A survey conducted by the Bureau of Labor Statistics found that the average American household spends $2,912 annually on entertainment, representing 3% of total income. Another $2,376 a year is spent on food not purchased from the grocery store.

Here’s my favorite result: The average family supposedly saves 18% of their monthly income, based on the difference between their after-tax income and what they say they spend. If this is accurate, the average family should have no problem with retirement savings, creating an emergency fund or paying off credit cards in full each month.

Which survey are we to believe? I’m not suggesting the majority of Americans have lots of cash to throw around, or that many lower-income Americans are not struggling. But I am suggesting Americans often mismanage what they have and they aren’t honest about it, either with themselves or with the folks who conduct surveys. Their lifestyle is based on spending—often paid for with debt—before taking the more prudent steps of saving and investing.

The average household credit-card debt is $6,270. About 29% make the minimum or a low payment each month and are charged, on average, about 15% interest for the privilege. Only 14% of men and 10% of women say they pay off their balance in full each month. That means a lot of money is going to interest payments. If you can’t pay the card balance in full each month, you may be living beyond your means.

A recent GOBankingRates survey found that 30% of Americans have between $1,001 and $5,000 in credit card debt, 15% have $5,001 or more in credit card debt and about 6% have more than $10,000. Is all that debt caused by spending on necessities? Color me skeptical.

My question: Where does individual financial responsibility begin? Some Americans seem to have an unusual view of debt and who creates it. This Tweet caught my eye: “Debt is banks keeping you poor by loaning you money for things that will take half a lifetime to pay back…. Thats what it is, debt is caused by big banks and governments.”

Yup, that’s the problem, Americans are forced to borrow.

In my opinion, a family’s lifestyle should be based on its total income minus three expenses: taxes, savings and necessary insurance such as health care. I suspect many people wouldn’t be happy with what that meant for their lifestyle.

Richard Quinn blogs at Before retiring in 2010, Dick was a compensation and benefits executive. Follow him on Twitter @QuinnsComments and check out his earlier articles.

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