Nearly half of Americans would have trouble finding $400 to pay for an emergency. I’m one of them


#1

A troubling article from “The Atlantic”:

"The Secret Shame of Middle-Class Americans

Nearly half of Americans would have trouble finding $400 to pay for an emergency. I’m one of them."

theatlantic.com/magazine/archive/2016/05/my-secret-shame/476415/


#2

Economies are built on savings. If spending money led to greater productivity anyone could spend themselves rich. Our economy is in dire straits. Much of the middle class would be better off not working, dropping down to lower class, and taking advantage of the generous social welfare benefits. The day they realize this we are doomed.


#3

I know the feeling. It’s tough. My wife and I both work (and she makes more money than I), but still, it’s tough. We probably spend too much on our housing. The mortgage is brutal, but we wanted to live in a neighborhood with a spectacular school district, and that’s expensive. And then there’s day care for our daughter. Although we are not poor, by any stretch of the imagination, cash is in short supply for sure. We think we’ve madebthe right decisions for our daughter, but it’s hard sometimes. We have no entertainment budget other than Netflix, we dress as inexpensively as our jobs permit, and we shop for food based on sales.

We have every kind of insurance imaginable (the right decision for our daughter, I think), but even that costs money.

So yes, cash is short.


#4

That is the whole object of the “Alinsky formula”. According to Alinsky, Obama’s mentor, there are too few poor people in the U.S. to cause a successful socialist revolution. So the objective is to separate a portion of the middle class and persuade those people that government dependency is their only salvation, economically. This can be done by sheer persuasion for some, but on actually reducing their resources for others.

So none of this should come as a surprise, now that an Alinsky-ite is running the country. And we should not ignore the fact that another one is in the wings and just won the Democrat primary in New York.


#5

I think you’re greatly exaggerating the amount of welfare benefits…

Those in the middle class make 30-100k/year depending on where you live in the country. You think someone making 30k a year in Iowa could quit their job and make 30+k in welfare?

Not gonna happen.


#6

The thing that makes this difficult is that our biggest group of long term welfare recipients are actually our wealthier group. Many recipients of medicare and social security have more assets than the average american. So we have created a dependent class, not because the group needs assistance but because the government convinced them that they are entitled to it. We can also thank George Bush for expanding welfare for this group when he signed medicare part d.


#7

humanevents.com/2012/11/28/poverty-pays-better-than-middle-class-employment/

This is graphically, and very painfully confirmed, in the below chart from Gary Alexander, Secretary of Public Welfare, Commonwealth of Pennsylvania (a state best known for its broke capital Harrisburg). As quantitied, and explained by Alexander, “the single mom is better off earnings gross income of $29,000 with $57,327 in net income & benefits than to earn gross income of $69,000 with net income and benefits of $57,045.“


#8

The home mortgage is a huge portion of one’s income. I see hundreds of home mortgage applications every year in connection with my occupation. (Closer for banks and mortgage companies). I really fear for a lot of the people whose applications I see and whose home mortgage payments I also see. For the great majority, here’s what it’s like:
-They have little or no cash, and when they have the cash for a down payment, it’s frequently borrowed or gifted, but that’s all the cash they have.
-Their payment-to-income ratio is stratospheric. “Acceptable” ratios from lender’s standpoint is on the very edge of solvency.
-They own no actual “wealth” (productive non-consumer assets).

I realize the school district situation puts people on the edge, financially. Want a good school district, you have to pay the housing price for being in it. But, short of sending one’s child to a truly failing school, one has to wonder whether the advantage is that great. And too, would the cost of Catholic school education really outweigh the cost of a house that’s too expensive? It’s not just the payment. There is a lot of maintenance to an expensive home. There are often homeowner dues in some subdivisions. There are the “social status” costs; the things one child participates in in school, the local pool, the club leagues for sports, the dance, karate, music lessons, on and on and on. And even people who are thrifty in their own clothing purchases are usually not when it comes to childrens’ clothes. If one goes to a tony school, one needs tony clothing, backpacks, shoes, etc.

I am no model for individual solvency. In my lifetime I have gone dead broke twice. Because I live in a community that’s still culturally “rural”, my wife and I bought an old “fixer-upper” from a bank (on the condition that the bank loan us 100% of the price plus money for paint). It was laughably cheap, but even then we could barely make the payments. I have almost never had a really impressive income, and when I did, it didn’t last long.

Saving money is tough. We now would be considered “wealthy” by some, though not by people who know what wealth really is. Every bit of our net worth came from borrowing money to buy investments. Every bit of it. It wasn’t savings. It made our situation even more precarious at times.

A side anecdote. Once my wife and I had $10 to buy a week’s groceries for us and our (at the time) two children. We scoured the store and finally filled our cart for under $10.00. Ahead of us in line was a cowboy (a real one) who got a lot more food than we did for even less money. It was mildly deflating to see that. We consoled ourselves with the conclusion that the cowboy was probably provided beef by his employer. (Surely :))


#9

You really think a single mom would choose to work the 29k job over 300 dollars net? :rolleyes:

The whole point of my statement was refuting the idea that someone could quit their job and make more money on welfare than with a job. Your source shifts the goalposts to someone with a job and welfare benefits.

Not to mention they say “single mom” but give no other info. How many kids? How old is she? What’s her education level? Does she get alimony from a divorce? Child support?

Let’s take away all that welfare and make her feed her kid(s) on 29k gross. :thumbsup:


#10

This article undergirds the message that Dave Ramsey preaches in his financial peace classes. Debt is dumb and cash is king.

Americans don’t live below their means, and don’t budget their money. They swipe their credit cards for all their purchases and later try to figure out how to pay for it all.

For those of you in similar situations as described in the article, here is my advice:

Get on a budget, NOW. And not a generic budget for every month. I’m talking about a budget for THIS month, THIS paycheck. And you will need to update the budget for every paycheck. (don’t worry, it gets much easier the more you do it). Make sure every dollar has a purpose and is allocated. Control your money or it will control you.

Here are the first few baby steps to get financial peace.

  1. BABY EMERGENCY FUND - Get a baby emergency fund. Pay the minimum payment on all bills and save up $1,000 in an emergency fund (separate from your checking account). If you have an income below $30k, get a $500 emergency fund. This helps to stop the cycle of borrowing.

The first step in getting out of hole is to stop digging. When you are working to pay off debt, you need a baby emergency fund so that you don’t borrow more money when a minor emergency happens. If the A/C in the car breaks, you have the cash to fix it. If you need to use the money for an emergency, you start back at step one and replenish the baby emergency fund.

  1. DEBT SNOWBALL - Once you have the baby emergency fund, then pay the minimum payment on all your bills, except for the smallest bill. Attack that one with a vengeance, using every dollar you can. Usually, everyone has a small debt that can be paid off quickly. Once you have paid it off, take all you were paying towards that one, and then attack the next biggest one. (Don’t worry about interest rate, attack smallest first. If two are about the same amount, then pick the higher interest rate. You need to build a few quick successes to free up your cash flow.)

Get radical in this step. Sell some things to pay off small debts. If you have a huge car loan (more than 50% of your income), sell the car and get a cheap car you can pay off quickly. Pick up a side job or two, drive for Uber or Lyft, and make some extra money. Attack the debts, smallest to largest.

  1. EMERGENCY FUNDS - Once you’ve paid off all debts in step 2 (except the mortgage), get a grown up emergency fund saved. This is 6-12 months of expenses. You will find you can save this very quickly once you no longer have any debts.

I can’t stress this enough, financial trouble is one of the greatest causes of divorce and family unhappiness. It leads to constant trouble and misery. Jesus even taught that we must plan before building, lest we run out of money. Look into taking the Dave Ramsey classes near you. I’ve taught several at our parish and the impact was huge. People actually started controlling their lives again and were getting out of debt.


#11

I’m a big DR fan, but it does bug me that financial literacy is not taught much anymore at home or in school. I had a Master’s at 22 which should have led to a steady if not lucrative income, but it didn’t. I had no other debt but $80,000 in student loans stinks. Eight years later I’ve learned a heck of a lot and I’m grateful I learned it younger than many, bit I didn’t get much besides “Don’t carry a balance on your credit card.”

I was book smart but not street smart.


#12

I think the last person I would trust for financial advice is Dave Ramsey. While debt can be dumb, it’s use can also be prudent. The trick is to know when debt is useful and when it is dangerous. He also totally misunderstands and misrepresents the investment world. He needs to learn about the efficient market hypothesis. In the aggregate he does as much harm as he does good.


#13

I think the idea of attacking debt is a good one though. People are far too comfortable carrying large amounts of debt that they have trouble servicing. I don’t really see any good that can come from carrying credit card debt, for example.


#14

I’ve never really understood Ramsey’s stances on snowball repayment and credit cards.

1.) Avalanche repayment of debt, highest interest to lowest interest is always a faster way to repay debts. I know he harps on the “good feelings” of repaying the small debts, but so long as you can stick to your repayment plan, avalanche is faster.

2.) Credit cards: He refuses to accept that they can be used responsibly. Why not use a rewards or cashback credit card in place of cash? You’re spending that money anyways on gas, groceries, eating out, clothing, etc, etc. Why not get money back? His primary arguments are that people spend more on plastic and that no one ever got rich off cashback or rewards.

I’d posit that adults in their 20s have spent most of their lives paying with debit and/or check cards. We just don’t carry cash, but for emergencies. This probably wasn’t the case in Ramsey’s time, but it’s a fact of life now. My strategy is when I spend on a card I jump onto my bank account via my phone and immediately transfer the money into my “bills checking” account. That way you know for a fact that money is gone.

As to cashback and rewards, his argument is silly. Maybe no one gets rich off it, but they sure don’t get any more poor. Just don’t EVER carry a balance month to month.

I’ve signed up for 5 credit cards in the 9 months or so to get rewards for wedding spending that we were going to be doing already. Here’s what I’ve gotten so far.

Amex Blue Cash Everday: $250 signup bonus + $42.00 in cashback
Amex Starwood Preferred Guest: ~27k SPG points worth at least $500 at Starwood hotels
Chase Sapphire Preferred: 87,400 Chase ultimate rewards points (worth at least $874 in direct cashback, or about $1100 in airfare/hotels)
Chase Freedom: See above (earns same points as CSP, and they’re combinable)
Discover IT: Something like $2 (I’ve neglected this card since it didn’t have a signup bonus) Will use more often now though since it’s 10% cashback on amazon for Q3 and Q4 2016.

Total interest charges: $0.00 :smiley:


#15

Schools took Home Economics out of their curriculum, and they need to add it back in. Far too many people are woefully ignorant of even basic budgeting and finance.

Give me an example of consumer debt, other than a traditional-conforming mortgage, that is “prudent” or “useful”. I find it funny that you think yourself an authority to lecture him on how markets work. Using his methods, every single one of the families in my classes DRASTICALLY improved their financial condition over the 13 weeks of the class, and many are still doing very well. They came from every walk of life, every income level, and every level of financial condition. And ALL were much better off after going through the class using his principles (which are based on biblical principles). I even went through and calculated how they improved, and on average they saved up $3k in savings and paid off $5k in debt, all over the course of 13 weeks.

You fall into the category of naysayers who think themselves much wiser than reality. You ascribe to wonderfully complex financial theories about “smart” debt, as if 95% of people could actually follow such a plan well. Look around. Our current state as noted in the article above is what happens when people try to use "smart’, “prudent” or “useful” debt. They become so impoverished they can’t even scrape together $400 cash.

I’ll take the real world results of the people who are helped over the ivory-tower theories that have caused the catastrophe.


#16

I don’t disagree with this, with the exception that most teachers I know are not that skilled at handling money themselves.

Give me an example of consumer debt, other than a traditional-conforming mortgage, that is “prudent” or “useful”.

My fidelity Amex card that pays me 2% cashback. If I am going to make a purchase, why should I pay cash when I can effectively get a 2% discount by using the card. It does require some discipline to pay it off every month. But I cannot understand not using it.

I find it funny that you think yourself an authority to lecture him on how markets work. Using his methods, every single one of the families in my classes DRASTICALLY improved their financial condition over the 13 weeks of the class, and many are still doing very well. They came from every walk of life, every income level, and every level of financial condition. And ALL were much better off after going through the class using his principles (which are based on biblical principles). I even went through and calculated how they improved, and on average they saved up $3k in savings and paid off $5k in debt, all over the course of 13 weeks.

I would question whether his program is based on biblical principles. If you read the book of proverbs, there is a lot in there about prudence and being careful with debt. It does not say to avoid it altogether.

You fall into the category of naysayers who think themselves much wiser than reality. You ascribe to wonderfully complex financial theories about “smart” debt, as if 95% of people could actually follow such a plan well. Look around. Our current state as noted in the article above is what happens when people try to use "smart’, “prudent” or “useful” debt. They become so impoverished they can’t even scrape together $400 cash.

I agree that financial literacy is a problem, but that does not mean that Dave’s ideas are the solution.

I’ll take the real world results of the people who are helped over the ivory-tower theories that have caused the catastrophe.

I tend to follow the bogleheads approach. It is a real world approach that takes into consideration the latest in financial research. It is not an either or issue.


#17

Rather dismissive to simply claim he’s in an ivory tower. Smart use of things like credit cards requires a modicum of self-control. I would like to think that more than 5% of people have that necessary self control…


#18

You are missing the key component to Personal Finance, the PERSONAL part of it. You are only focused on the finance side. People need successes early. Paying off the smallest debts does a couple of things. It gives a sense of accomplishment to them because they’ve slayed their first dragon, even if it is small. It also frees up their cash flow faster, which protects against emergencies. If you are able to free up $100/month faster, if a minor emergency arises, you are able to pay for it and use the emergency fund less, and also to replenish the emergency fund faster.

It is all about the human psyche and how people work. Success in any endeavor is critical. Especially early.

2.) Credit cards: He refuses to accept that they can be used responsibly. Why not use a rewards or cashback credit card in place of cash? You’re spending that money anyways on gas, groceries, eating out, clothing, etc, etc. Why not get money back? His primary arguments are that people spend more on plastic and that no one ever got rich off cashback or rewards.

The % of the population that would responsibly use credit cards like you describe is a very small portion. EVERY SINGLE ONE of the people in credit card debt right now thought THEY were one of those who would use it wisely. EVERY SINGLE ONE. And look where we are.

If you ever had to work with many people in financial distress, you would soon learn to hate credit cards very quickly too. It is the source of much distress, financial hardship and misery.

I’d posit that adults in their 20s have spent most of their lives paying with debit and/or check cards. We just don’t carry cash, but for emergencies. This probably wasn’t the case in Ramsey’s time, but it’s a fact of life now. My strategy is when I spend on a card I jump onto my bank account via my phone and immediately transfer the money into my “bills checking” account. That way you know for a fact that money is gone.

It has been proven with studies, that people spend more when they use debit cards instead of physical currency. And they spend MUCH more when they use credit cards instead of cash or debit. It would be better for young people to shun credit cards.

As to cashback and rewards, his argument is silly. Maybe no one gets rich off it, but they sure don’t get any more poor. Just don’t EVER carry a balance month to month.

I’ve signed up for 5 credit cards in the 9 months or so to get rewards for wedding spending that we were going to be doing already. Here’s what I’ve gotten so far.

Amex Blue Cash Everday: $250 signup bonus + $42.00 in cashback
Amex Starwood Preferred Guest: ~27k SPG points worth at least $500 at Starwood hotels
Chase Sapphire Preferred: 87,400 Chase ultimate rewards points (worth at least $874 in direct cashback, or about $1100 in airfare/hotels)
Chase Freedom: See above (earns same points as CSP, and they’re combinable)
Discover IT: Something like $2 (I’ve neglected this card since it didn’t have a signup bonus) Will use more often now though since it’s 10% cashback on amazon for Q3 and Q4 2016.

Total interest charges: $0.00 :smiley:

Congrats? You are one of the VERY few who actually has the discipline to do this. Many will claim they could do it, but very very few actually could. Like the multitude of Vegas gamblers who all claim they’ve won big, but in reality most have lost big. Vegas wasn’t built on people winning money, and credit card companies aren’t built based on people like you.

Here’s the question, would you be in bad shape if you followed Dave’s formula instead of your own? Would you be financially destitute? Of course not. So even for you, the formula would work.


#19

Even basic budgeting and handling a checking account would help. Even going over a basic textbook that explains things would be better than what we have now.

My fidelity Amex card that pays me 2% cashback. If I am going to make a purchase, why should I pay cash when I can effectively get a 2% discount by using the card. It does require some discipline to pay it off every month. But I cannot understand not using it.

You have not described debt, but an actual charge card paid off in full each month. And do we really need more examples of how detrimental credit cards have been to Americans? Just because a small minority of people can responsibly use some debt does not mean it is wise or prudent for most people to use it.

This is personal finance. It’s not finding an exception or loophole to prove something could possibly be good. Would you be financially insolvent if you didn’t use your AMEX? Of course not. It gives you a small discount (while you ignore studies which show you spend more using a credit card than you would with cash or debit).

Give another example of “prudent” or “useful” consumer debt. Preferably one that hundreds of millions of people have not failed to use properly. This example doesn’t fly.

I would question whether his program is based on biblical principles. If you read the book of proverbs, there is a lot in there about prudence and being careful with debt. It does not say to avoid it altogether.

Proverbs 22:7
“The rich rules over the poor, and the borrower is the slave of the lender.”

I agree that financial literacy is a problem, but that does not mean that Dave’s ideas are the solution.

His ideas actually work in the real world, with real world success.

I

tend to follow the bogleheads approach. It is a real world approach that takes into consideration the latest in financial research. It is not an either or issue.

I follow what actually works in the real world, with actual results to show for it.

If more than 5% of people have that necessary self-control, we wouldn’t have a situation where large swaths of Americans can’t scrape together even a measly $400.


#20

You…uh…want to cite your study for plastic vs cash? I’d be interested to see how old the data is.


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