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The Secret Shame of Middle-Class Americans
- jbob2000 9y agoThe secret shame of the middle-class isn't their credit debt, it's that they are poor decision makers. The author completely glosses over this, only dedicating a single line to the elephant in the room: > "I made choices without thinking through the financial implications" That's it. Full stop. You bought a car without having a stable job. You bought a house way outside your earning ability. You bought fancy clothes and gadgets without having the cash to pay for them. Don't blame credit, you did this to yourself.
- randomf1fan 9y agoTo be fair to the author, he does say this "I don’t ask for or expect any sympathy. I am responsible for my quagmire—no one else. I didn’t get gulled into overextending myself by unscrupulous credit merchants. Basically, I screwed up, royally. I lived beyond my means, primarily because my means kept dwindling."
- fjdlwlv 9y agoHe still makes the false excuse that his problem is earning, not spending.
- mattmanser 9y agoAre they poor decision makers, or were they poorly taught financial concepts? Were they ever taught how to budget, how to see the actual cost of borrowing, etc.?
- overcast 9y agoDoes buying something you don't actually have money for, something that requires education? I mean, that's just self explanatory.
- epmaybe 9y agoI don't think that's what the original commenter meant. Most people understand that, but don't know how to budget for things that ARE necessary. I myself am terrible at budgeting, yet have a huge safety net so that even if I go past my budget I am safe.
- overcast 9y agoMint was a pretty big game changer for me in the world of budgeting. But it's not as if that is rocket science. It's just good to see spending trends. You make X dollars per month, don't spend more than that. That's a basic budget everyone should adhere to for starters.
- epmaybe 9y agoI actually just reset my Mint account yesterday to try and budget better! It wasn't connecting to my bank and credit card accounts before but it seems to be okay now.
- nlawalker 9y agoUnderstanding "don't actually have money" is something that requires education. With the way things are, it's very easy for someone who hasn't been explicitly educated otherwise to look around and just assume that buying all you can and making minimum payments is just how things work.
- CWuestefeld 9y agoI think understanding this is a big part of it, and is something Megan McArdle mentions sometimes in her columns. The idea is that we see lots of people around us who we think are very much like us. And we see that lots of them have a house with 3000+ square feet. And lots of them drive an Escalade. And lots of them have their kids on travel sports teams. And lots of them have this and that and the other thing. Every time we see that people around us tend to have such a thing, that suggests to us that we can afford it too. The thing is, we make each of those observations independently. We don't generally take a complete inventory and see that Family A is paying for those sports activities, but doesn't have the top-of-the-line cable TV package; while Family B has the cable TV but goes without the annual vacation to the Caribbean. We tend to want all the things that we observe that much of our community has, without thinking too deeply about the fact that none of them actually have all of it. EDIT - spelling
- LyndsySimon 9y agoSpeaking only for myself, I'm a poor decision maker. I could easily teach a class on financial planning for young adults, but it's everything I can do to keep my own financial house in order. It's certainly not because I don't know what I'm doing wrong.
- Sleeep 9y agoMay I offer an unsolicited tip? Multiple bank account with automatic payroll deposits are your best friend as weird as it sounds.
- LyndsySimon 9y agoI appreciate it, and it doesn't sound weird at all. I've tried several solutions ranging from separate bank accounts by purpose to physical cash in envelopes. The issue doesn't seem to be one of organization but of mindset. FWIW, I strongly suspect that I've turned the corner on that in the past few months. It's amazing how difficult it is to break the habits acquired while younger and less financially secure. The mindset of "If there is money, spend it on things that you need before it's not there" has been taken me almost a decade to shed.
- SilasX 9y agoSure, let's go through that cycle again: "People shouldn't be able graduate high school until they can understand the financial implications of a loan!" "Schools and teaching are ruined because they blow all their time teaching to the test! My little mini-me is held back from graduating because he can't calculate compound interest!"
- talmand 9y agoI don't think those two things are necessarily permanently linked together.
- dv_dt 9y agoI think what we see there is that humans learn a lot from social cues from their parents, relatives, and peers. For many cases this is an advantage because you don't have to explicitly break down a topic for teaching and learning - there's probably a 1000x times when this implicit learning ends up better for the group than not. But when the middle class is shrinking, then there are a lot of built up tribal approaches for handling finances which are diverging from stable choices in reality then that copying breaks down - especially if you're in a cultural group where it's taboo to some degree or other to discuss finances. e.g. You have to go to college - modern explicit caveat: studying a major that has a chance of paying back the college debt. It's a good to buy a single family house - modern explicit caveat: only if you have sufficient income stability and down payment saved - before a house was a small enough portion of middle class income that it could generally work out well in a wider range of cases. Keep up with your peers spending on social cues: vacations, new cars, etc - keeps you networked into a social group for work/business opportunities (but if the group as a whole can't sustain some lifestyle... then this becomes a negative...) etc... I don't think this is the sole problem, but I think it's a big social driver of it.
- snarf21 9y agoYou're right but there is a lot of predatory lending. Should people even be able to get a $20K limit on a credit card? How many could ever reasonably pay that off? What about payday loans, etc.?
- brianwawok 9y agoSo get rid of all of that, and I think you will find the problem remains. You can get paid in cash with no loans and STILL blow your entire paycheck in 2 days. Or you can get paid in cash and STILL save 50% of it in a bank and live in your means. Not that we should not touch predatory lending. But so much of our economy is built on advertising and stuff, just shutting off the loan tap will not fix the problem.
- fjdlwlv 9y agoBlowing all your cash is trivially obviously better than running up credit card debt
- brianwawok 9y agoWhat about a cell phone with a $100 monthly bill? How about $250 cable tv package? Neither are loans. Both are as bad if not worse than credit card debt.
- graedus 9y agoOf course that's possible, but I think more people will avoid that if they know they won't be able to afford food the next day. Easy credit is a big factor allowing people to continue making the bad decision to keep living outside their means for quite a long time without directly feeling the negative effects until farther in the future. By then they end up with a hefty amount of debt and their lifestyle preferences are ratcheted up; they don't want to downgrade from their BMW to a Honda, move to a less fancy neighborhood and start cooking more meals at home. They are more inclined to keep scraping by with their luxuries, overburdened by debt service.
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- pascalxus 9y agoThis guy made a lot of financial mistakes. His earnings are many many multiples higher than people from less fortunate countries, even after adjusting for cost of living. >"Ate eggs for days, while waiting with my last 5$" ?? Eggs are no-where near the cheapest food you can get. eggs are 12$/2000 calories!! He should've gotten oatmeal -> at 70c per pound, it comes out to less than 1$ per/2000 cals. And I'm sure this is only the tip of the ice berg of financial mistakes, as he's making over 50K per year average. But, there's a bigger message we can draw from this. 1. We desperately need better personal finance training - it should be a primary subject taught in k-12 2. We need to get housing costs down. The most important money you spend is shelter - everyone needs shelter, everyone deserves it. It's appalling that in over a hundred years we haven't made any progress at all in this industry. And by progress, I mean, nationwide: the cost of housing relative to inflation has not decreased at all. Some states have been regressing to the extreme: California. Part of the solution: Get rid of all housing regulation that prevents innovation in this industry. Outside of housing cost, there's many ways to save, it just takes some research.
- fjdlwlv 9y agoEggs are $1/dozen which is 1000cal, unless you buy pasture eggs. Oatmeal is low on fat and protein
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- derekp7 9y agoThe theory I came up with: at middle class income level, spending money gives hope of increasing happiness, or reducing stress. So if you have an unreliable car, it may be cheaper to keep spending money on car repairs -- but it can leave you stranded when you really need to get to work. So buying a newer more reliable car reduces that stress. But it increases financial stress. I wonder if people are wired to prefer a single stress source (financial), instead of a bunch of smaller stresses.
- carsongross 9y ago> Don't blame credit, you did this to yourself. Sane western cultures don't allow citizens to fall into debt-peonage. This is why we forbid usury for so many centuries, based on the late roman empire experience.
- Dirlewanger 9y agoI'm so sick of reading these articles about how horrendous our financial habits are, and they end up pointing the finger at everywhere else but the individual. There's so much literature out there on how to better oneself that it's near-inexcusable nowadays, especially when nearly everyone has access to the greatest library in the history of civilization (if they don't, they most likely know someone who does or can get access to it [public library and such]). 30-40 years ago I can see financial illiteracy being more forgivable. But not today. Yeah, shit fucking sucks today. Wages haven't increased, student loan debt, etc. etc, but there's a point where people have to stop whining and start protecting themselves against the reality of the times.
- pascalxus 9y agoYup! And there's even more ways to save today than 30-40 years ago. You have pay per mile insurance (metromile) that costs less than half of traditional drivers insurance. Phone plans that cost 10$ per month or less (www.usmobile.com), 2nd hand places to buy (craigslist, close5, letgo, etc) and countless other ways to save. And yet, people choose not to.
- pfranz 9y agoIf enough people are having problems that it becomes a systemic issue (student loans might be in this category), then personal responsibility isn't cutting it. The big flaw of a true free market is information imbalance and externalities. I only have one chance to save for retirement while a financial company may deal with 100s of thousands so it's harder for one side to learn from mistakes than the other. Like regulations around children's toys I think both sides have fair arguments--neither is 100% correct. I just don't think it's 100% personal responsibility in a modern society.
- QuantumGravy 9y agoVicious cycle / feedback loop. I recall there being a few studies suggesting that being poor can lead to poor decision making, and I certainly agree that poor decision making reinforces negative outcomes such as credit card debt. Thus they are individually responsible for what they've done, but the impoverished middle-class as a whole shouldn't be blamed for where they're headed. Poverty Impedes Cognitive Function http://science.sciencemag.org/content/341/6149/976 http://science.sciencemag.org/content/341/6149/976
- JoshMnem 9y ago> That's it. Full stop. You bought a car without having a stable job. You bought a house way outside your earning ability. You bought fancy clothes and gadgets without having the cash to pay for them. Don't blame credit, you did this to yourself. Your conclusion assumes that marketing doesn't work. (It does.) The people who get consumers to do those things are more sophisticated and organized than most consumers. Many people do need to use more discretion with spending, but that isn't the whole story. Another thing to consider is that it's very difficult to improve one's situation when you don't have modern things that save time: transportation (car), housing that isn't too far from work, and other things that save enough time to allow one to invest time into increasing total assets. Making money often requires investing money. People who do have sufficient money don't think about the small things that give them enough free time to make more money.
- abandonliberty 9y ago>Don't blame credit, you did this to yourself. How casually we disregard the people whose poor decision making underpins capitalist society. Falling for carefully crafted messages to alter human behavior, they work in near-servitude to purchase their dreams and happiness. Someone has to pay interest on credit cards - I don't :) I don't know if financial literacy can be taught effectively; it may link back to fundamental behaviors.
- randomf1fan 9y agoI'm always baffled by one thing in these sorts of articles - the belief that paying the minimum due on your credit cards is the right thing to do. I'm not going to pontificate about living within your means or whatever, obviously people have reasons for doing what they do. But I don't understand how so many people are cheerfully paying the minimums and treating credit as basically an extension on their salary. I have seen this at work as well, people making low six- figure incomes paying minimums. I've even had someone tell me that paying in full is bad for your credit score. Is this a generally held belief? Do most people pay the minimum?
- kartD 9y agoCredit cards have ridiculous interest rates (like 20%+ min.). It's far better to take out a loan and pay your credit dues since the loan will be at a far better rate (at least half). Why would any sane person do this (pay min. balance)?
- randomf1fan 9y agoYes, exactly. That's why I don't get it. I can understand going through a rough patch where you pay the minimum cause you can't afford it, but I cannot understand constantly paying the minimum when you can afford to pay much more
- robalfonso 9y agoIts possible they are perpetually in a "rough patch" Americans do have a mind set of "temporarily embarrassed millionaire" That would lead to this kind of behavior.
- segmondy 9y agoLoans are not given out freely like that, easiest loan you can get is credit card and loans from loan sharks. But a bank loan? You have to explain for what, and have a collateral.
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- Sleeep 9y ago>“You are more likely to hear from your buddy that he is on Viagra than that he has credit-card problems,” says Brad Klontz, a financial psychologist who teaches at Creighton University in Omaha, Nebraska, and ministers to individuals with financial issues. “Much more likely.” What!? This... Isn't even remotely true. Maybe it's just my peer group and family but complaining about money problems is extremely, extremely common. Other than my coworkers I know more people who talk about lack on money then don't. It kinda gets old though because I see the complainers complain then go out and make terrible financial choices. I have a friend whose always complaining about money yet he's buying expensive clothes for his wife, bought two brand new cars (one for the wife), and a motorcycle. While complaining he can't afford groceries. Then goes on several vacations. These people actually have enough money to fund a pretty decent lifestyle if they just worked to get out of debt then worked to budget. Seems people just want to buy the things they want no matter their ability to pay for them. And banks are happy to lend money to finance this lifestyle. So we have more advertising, more credit, and more things to buy. I think there's a cultural expectation of perpectual debt. Like everyone always has multiple "car payments" and a "house payment." Need something? No need to save for it, just take out a loan and add it to your monthly payments. That's how people get in trouble - leaving no cushion. I just find it hard to get through this sort of article, making it seem like average-to-good income earners, someone earning $50,000 a year, are victims of some sort. I went without for a long time to get myself out of student loan debt and the get myself to a place of economic security. If I can't afford something, I don't buy it. It's not hard concept, but it does require going without. I also don't think paying these people more would help - they would just spend more.
- shados 9y agoYup. I essentially learnt how to manage my finances by watching my parents fuck it up over and over. Burning so much money on a wedding that they had to file for bankruptcy. Carrying balances on their credit cards for years (even when they could easily pay it off). Finally getting a chunk of money as a lawsuit settlement and buying a $18,000 TV (yeah, a $18,000 TV. What the ever living <beep>. They had their share of bad luck, but nothing that couldn't have been worked around by making even marginally better decisions ($18,000 bucks used the right way can go a loooong way...)
- losteverything 9y agoThe best line i heard from a guy in my route is this When i was 20 i wanted to make 100k by 30 When i was 30 i wanted to make 1m by 40 When i was 40 i didnt care about money And now in my 60s i want to die $3m in debt.
- curun1r 9y agoPut another way (I saw it on a Citibank billboard, but it probably originated elsewhere): "Why do we spend our youth chasing money and then our money chasing youth?"
- pinaceae 9y agoAt the heart of it is piss-poor basic education. Math, reading comprehension, decision making, critical thinking. Budweiser is the king of beers, it says so on the label. The World Series is the world championship in baseball. etc etc etc. However - this is great for the overall economy. The US is breeding the perfect customer, that can be sold anything at any time. You can see it in startups too, you can sell product based on a powerpoint, a "vision". 9 out of 10 with nothing behind it. It would never, ever, fly in Germany for example. People there assume a scam before anything else. So, shit for individuals, great for the overall economy. Pick your poison.
- CodeMonkey1 9y agoYou only need 3rd grade level math to understand budgeting. The problem is lack of discipline.
- CWuestefeld 9y agoI don't think it's surprising that as individuals we've allowed the depth of our safety nets to shrink. After all, we've been telling ourselves for some time how important it is to strengthen the safety nets provided by the government (and generally, have actually done so). Given that we're telling everybody that there's a fallback available for many kind of problems, we should expect that people will de-emphasize the amount they sacrifice for their own such purpose. So the stats quoted in the article, about how much margin people have for rainy days should be supplemented by information about the net value of the benefits they will, or could, derive from the government. What's the NPV of their expected Social Security and Medicare benefits? What can they expect to get in aid from Medicare or CHIP-type programs? What would their unemployment benefits be, should it come to that, or food stamp and related programs?
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- firefoxd 9y agoIt's easy to say "they are stupid, they should have thought about it before making those decisions." When I think back i was very stupid at 18, but that's the age everyone expected me to go to college, and everyone told me it's ok to take a loan because with a great education I'll have the best job, and it will be easy because I'm super smart. Everyone encourages an young dumb 18 year old to get in a large debt like it is nothing. Then, "do you have good credit? Get a good car cause you don't want to be thinking about fixing it, you want to focus on your studies" Then, "buy a house, otherwise you are throwing money away every month while you could be investing in your own home" This is something totally normal, it's the system. It's so ingrained in us (at least in the US) that not having these debts is socially shameful.
- ZenoArrow 9y agoI'm sure it is partially a cultural thing. What steps did you take to reduce your debt after you realised it was holding you back?
- firefoxd 9y agoI got lucky, i was denied all these things. Sure at that age i was ashamed to say i dropped out of school cause i could no longer pay out of pocket. My school mates were uncomfortable when i talked about taking the bus. And when i couldn't buy food with at lunch with a credit card, i simply didn't eat. Today i can pay $400 for an emergency, most my friends can't.
- twoquestions 9y agoIf you could have written this article, read every post in this blog: http://www.mrmoneymustache.com/ http://www.mrmoneymustache.com/ I was a spendthrift for years, and even regular raises couldn't get me ahead. This guy teaches you how to not only save money, but take pride in not having the latest and greatest everything. This, IMO, is what makes spending within your means sustainable in a society that looks down on those without the proper social status markers. If you're in an economically depressed area where the richest family in town doesn't have a pot to piss in, your poverty isn't you fault, and we should have a better safety net that helps people up to more valuable careers. If you have means, save your money, and take pride in not being suckered in by people selling you stuff that won't make your life better!
- pascalxus 9y agoAnother thing we need to learn from this: just how high Taxes are in the US. The middle class is getting hit really hard with this. US govt spends 38% of GDP, so for the average person, they're losing 4/10$ they earn: though it's not all from income. And it's worse than you think, because it's not just about the income you make. When you spend that income, the purchasing power is much less because everything costs much more due to the high taxes. Example: Day care costs 1500 instead of 1000$ per month, etc, etc. And it's much worse in states where living costs are high: like CA and New york (where the author lived).
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- 5555624 9y agoThis article is from May 2016. Previous discussion: https://news.ycombinator.com/item?id=11533567 https://news.ycombinator.com/item?id=11533567
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