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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…. That’s 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 QuinnsCommentary.net. 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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There are lies, damn lies, and statistics.
I would be very cautious making any conclusions
from the cited survey.
It had:
“The average American household spends $2,912 per year on entertainment”
and next sentence:
“Average entertainment cost per month: $243”.
These 2 sentences say something TOTALLY different. First one says typical American household spends $2,912 per year.
Second one says if you total all the spending
and divide it by # of households in the US that = $243.
Say if the US had one billionaire spending $243,000 / month on entertainment and 999 other households spending $0.
Average entertainment cost per month: =
$243,000 / 1,000 = $243.
NEVER trust any writings using “Average” without a huge amount of checking.
When my sons were in high school, the class wanted to go to TGIFridays together. We told our sons they could go–if they use their own money. One of their friends with a sensitive heart told her mom she wanted to help them out, feeling their pain. The mom responded, “They’re not rich in TGIF’s, but they do have 6 guitars and a bassoon.” I thought she made a good point! They funded their own trips to the restaurant.
Most of us need cars. For many people, this is a necessary expense. In my case, I don’t need a car, but it would severely limit my mobility and substantially change my lifestyle in ways Americans simply will not accept. And I would still rely on other people with cars for Uber, Lyft, taxis, and deliveries.
Like bankruptcy law used to let people keep their tvs, for many, cars and a computer or at least a smart phone, are necessary expenses.
Most people need a vehicle to meet transportation needs, that’s true, but the largest selling vehicles are pickup trucks, expensive vehicles.
I’ve always believed that personal financial literacy should be a major part of both a public and private high school (maybe even junior high) education. Personal responsibility is essential no doubt, but ignorance of financial basics plays a huge role in the mess people find themselves in these days.
Certainly the current economy plays a large role in folks money issues but a strong knowledge of personal finance would help ease the strain.
Certainly more beneficial to students and the USA than indoctrination in CRT, gender-switching, and other “non-essential education”. Maybe toss in some “reading, riting, and ‘rithmetic” to fill a student’s day.
I have a feeling that basic financial education, which I think should be part of public education, would generate as much push back as teaching facts of US history.
I suspect part of Richard’s reaction is due to where he lives. In New Jersey, New York City, Long Island, and Connecticut, there are a large numbesr of very affluent people. They can support an endless supply of fancy restaurants and boutiques. But if you get away from the affluent areas, incomes are low and people are struggling.
The relationship between the NY metro area incomes and COL and middle America, etc has always been true. It’s not the wealthy who are supporting all the non-necessity spending I mentioned.
i am on the last day of a three week, 6000 mile around the US road trip and my observations on spending are not changed anywhere. Again, i am not referring to the very low income Americans who no doubt do struggle.
Most Americans have a spending problem more than an income problem.
Just recently completed a 5000 mile road trip to the west coast and return. My top three observations are there are very few thin people, and based on driving speeds hardly anyone is concerned about fuel prices. Thirdly, signs of affluence are not obvious in small town America any more – that has all moved to the now huge urban/suburban islands of population, apparently.
People depend on credit cards when they have lost jobs, which happened a lot during the early pandemic days. And in a country without national health care, many of us face extraordinary medical expenses. Employer insurance often doesn’t provide good coverage for vision or dental care. Many people like me have never inherited money, which is especially true of minorities. That can really help people get on solid financial footing. I know it has for most of my friends. Child care has become pricey with 51 percent of parents claiming they spend more than 20 percent of their household income. I think it’s too easy to judge people on their spending when we don’t know what they face each day.
Medical expenses are really an issue. For instance, I take a biologic that is necessary for my basic health. I had difficulty with basic mobility 7 years ago, but now can dig holes for fence posts. This improvement is truly due to one synthetic monoclonal. But without medical insurance, it would be more than 25% of my income and I make more than the average American. I’m fortunate to have excellent medical insurance, but even with Obamacare, too many people are just one medical issue away from indigence or debt. I’ve been subsidizing one of my kid’s health insurance plans since she turned 26. It’s just too expensive for low paid workers.
American culture has inculcated unfair expectations of lifestyle and wealth, but we also have massive inequalities and structures that prevent wealth baked in to our systems. The notion that we have to take personal responsibility for health issues, which are often out of our control, is one of them.
Ron, i think you need to take a broader view of Americans. There are always exceptions, always excuses, but in the aggregate Americans have larger, more expensive of everything than other societies. Just more and unnecessary stuff we have come to think of as normal and which drains our ability to prepare for the future and emergencies.
Sure, some people have credit card debt from being unemployed, but thats not the majority. Employer vision and dental coverage, if it existed, has never been very generous and those are life expenses.
I think you’re both right. Ron is right that there are major aspects of our economy that are skewed against middle class people or those trying to attain middle-class status: the price of housing, medical care, the cost of higher education.
Richard is right that spending is out of control for many, with things considered “necessities” that really are not—salon visits, fancy gyms, takeout/restaurants, higher-end cell phones, and yes, pickup trucks.
The two things are connected, perhaps. If you know you can’t ever buy a house, might as well go out for avocado toast and a latte, right? I know in the San Francisco Bay Area, there are tech workers who live in mobile homes (that’s all they can afford) but who drive Teslas (more achievable).
I think you’re on to something. I’ve heard it said that, “A luxury is the thing you can just barely afford.” If buying a home in San Fran is the luxury you can’t afford, perhaps owning a Tesla is. This is why renters will often own nicer cars than homeowners, and those who take public transport will have newer iPhones than those who own cars.
Many thanks for stating the truth…most financial issues are self-inflicted.
Thanks for your post Richard,
Your question: Where does individual financial responsibility begin? My answer, and I would speculate as well as the answer of most Humble Dollar readers, is of course yourself.
I believe the knowledge and skills for personal financial success can be taught even though I have, regretfully, ignored some teaching and have had to learn through the pain of a poor decision. Fortunately not to often and mostly in the past. Financial knowledge is not static and thus I am an avid reader of financial blogs, books and literature and appreciate those who so willingly share their thoughts and experiences.
In the past, decades ago, I have taught a Personal Management Merit Badge class for a local BSA troop, volunteered as a coordinator to recruit local speakers on personal financial topics for a high school personal financial class and also participated on a panel as part of a Junior Achievement program that my local chapter of the Tennessee Society of CPA’s participated in. I think I benefited as much or more from the experiences as those who attended.
So what do we do as those who have benefited from the generous gifts of time and knowledge to us and our community? Paying it forward seems to me to be the right answer.
The Business Insider article you cited has a link to the Monmouth University press release which provides more information about the survey. Importantly, the specific question asked respondents was Thinking about your current financial situation, would you say you are struggling to remain where you are financially, basically stable in your current financial situation, or is your financial situation improving? [emphasis added]. It is also noteworthy that the % of respondents who agreed with this statement increased from 24% in June 2021 to 42% in June 2022, which suggests that the large increase reflects inflation-driven cutbacks.
The voice of reason and logic. Well said.
The academic left carefully crafts their questions so that virtually any answer can be used to support their anti-American views
More taxes and regulation is always the answer right ?
I doubt it’s all that sinister, but survey results grab the headlines and they influence political views one way or the other, but my view of the problem is once published there is little questioning of how and why the results are as they are. Remember, we are talking about the great middle class, not the outliers of the poor and wealthy. These are the folks who keep the economy humming, so they are spending, but according to some surveys don’t have money to spend.
Well, your response is devoid of reason and logic. Please keep politics out of Humble Dollar.