[danans]

> 78% of Americans live paycheck to paycheck, and most Americans would struggle to cover an unexpected $400 expense. > How did we get here? > Why aren’t we doing better? > Managing Money is Hard

We aren't here because millions of Americans didn't manage their savings optimally. They went to work, played by the rules, and saved what they could. We're here because the gains due to productivity growth for the last 40 years have increasingly gone to the to top wealth and income percentiles. That is the result of tax and trade policies changes that began in the 1970s and were cemented by the 1990s.

Meanwhile, concurrent with those changes, the cost of things that used to be "basics", like health care, higher education, and housing, have skyrocketed, while previously "universal" rights like good public primary education have been turned into lotteries. Society's capital has been sold to the highest bidder, and most of us have had no choice but to be part of that auction.

None of this is to excuse banks extracting revenue from savers via fees, or other similar practices pointed out in the article, but better management of personal financial capital won't be effective in helping people who can't cover an unexpected $400 expense, because those people have no financial capital to begin with, and due to tax policies designed to keep wealth in dynasties, their children likely won't have any capital either.

[losvedir]

I really doubt this. It just doesn't pass the smell test to me. You see people living paycheck to paycheck at many different incomes. If someone in a given location in situation is living paycheck to paycheck at $10/hr and someone else is doing the same at $12/hr, guess what? The latter person could have accumulated an emergency fund of $4,000 in a year.

No doubt there are people in real poverty, and no doubt some people get struck by a medical emergency, but there's just no way three quarters of Americans are in that situation. I'm old enough that I've seen way too many people living paycheck to paycheck that absolutely shouldn't be.

I think this article is 100% on point and clicked through to the services it was mentioning because it resonated so much with me. I was taught to save a percentage of my paycheck no matter what it was, which I began right out of college when I was making $28k/yr in Boston, and so I'm in a pretty great position now, but the article is right that it's hard and often confusing, and I would love for there to be a service that helps me along in this process.

[uoaei]

> I was taught to save a percentage of my paycheck no matter what it was

This is part of the lottery. You were very fortunate to have been raised such that you are familiar with the ways in which money can work for you. Being born into a situation where this isn't the case is already a huge detriment, not to speak of actual hardships once you're on your way. It's not a stretch to think that even half of those people in paycheck-to-paycheck lifestyles are this way.

> but there's just no way three quarters of Americans are in that situation

There is. Medical emergencies, as a contained example, are not isolated incidents -- when they affect caregivers, the whole next generation (or two! or more!) can be affected so heavily that the family essentially loses all their wealth in the span of a few years. More broadly, the community steps up to help out those in need, but often those in need are already in communities of need. One chink in the armor can drag down a whole network of people, and the strength of that can be unexpectedly high. If government welfare was more comprehensive and less difficult for poverty-stricken people to access (see: means testing and the time sink of waiting in lines), this would not be nearly as much of an issue. The "free market" sucks people dry if and when it gets the chance.

[losvedir]

> This is part of the lottery. You were very fortunate to have been raised such that you are familiar with the ways in which money can work for you. Being born into a situation where this isn't the case is already a huge detriment, not to speak of actual hardships once you're on your way.

Well, sure, but that's exactly the point of this post: that it's about education and knowing what to do. I agree! I was lucky to have learned when I was young, and lots of those 78% are people who just don't know how to budget and save.

I was responding to a comment that I understood meant people couldn't save due to the economy and such that it's impossible to accumulate savings. No! It's an education issue.

[sharkmerry]

The lottery is in everything. The fact that you were able to save money at 28k/year income. The fact that you were able to go to MIT. Education helps, but its not the entire influence and there is luck in education...

[uoaei]

As an aside, the attitude of GP is very common for people with only one or a couple dependents, or else a solid support network, and no experience of ever being without a safety net. It really is terrifying to be poor, and this further exacerbates the issues when you are forced to make consequential decisions under that constant low-burning stress response.

[aj7]

Another lottery, in healthcare, is simply how much you know about human biology. Most people are remarkably ignorant, and fall for all sorts of “wellness” schemes, not continuously, but from time. But this peanuts: it supports the scam wellness industry. But what about when you’re really in trouble? Then you’re at the mercy of insurance companies and a particularly small group of doctors (and if hospitalized, nurses) who you may or may not have much of a say in choosing. Medical care anywhere is self-triaged. By that I mean your level of education and relative wealth greatly influence your quality of care, even if you have insurance or Medicare. Sophisticated people can game the system, using knowledge and research, getting superior care than ignorant people with the same nominal coverage get.

[bena]

Your math is off.

The difference between $10/hr and $12/hr isn't $2. It's less because of taxes.

It comes out to roughly $2900 gross.

You also figure that if you're living paycheck to paycheck then you've met all of your needs. That's not necessarily true. The person making $10/hr could be skipping meals to last through the pay period.

They could also be skipping on preventative healthcare. Or some other thing.

And it also matters when you were making that $28K/yr. A dollar today is worth less than a dollar yesterday.

[aj7]

Exactly.

[perl4ever]

Talking about a large cash emergency fund seems to me like a suggestion handed down from 50+ years ago. Why wouldn't a middle-income American these days just keep a minimum of ~$500-$1K in a checking account to prevent overdrafts and use a credit card if something unexpected happen? Over time, if you have a steady job in the $40-60K range, you can build up credit to the point where you have access to more than a year's income just via credit cards.

Is this "paycheck to paycheck" or not? If you have >$4K in checking at some times in a month, because you just got paid and you haven't paid your credit card bill, that's not technically an emergency fund, right?

I endorse your point that since there are people at all income levels who spend all their income, there's an inductive argument that nearly everyone can save.

[taigeair]

Maybe we can have someone from the credit card companies chime in with their thoughts. From my experience, I was shocked to hear cashiers at Walmart going to the Bahamas and staying at 4 star hotels, while I stayed on couch of an Airbnb that I split with my ibank and tech friends.

[Barrin92]

I'd like to push back on that somewhat. While it's true that the cost for a lot of basic necessities has gone up there is a lot wrong in American culture when it comes to lifestyles and savings.

The size of the average American home has approximately doubled since the 70s. This has driven up prices, increased energy cost, increased travel distance due to the constraints it imposes on density and so on.

There is no real explanation for why any given American would be worse off by doing away with this kind of consumption. The same is true for say nutrition. American healthcare costs are high, but Americans also live exceptionally unhealthy lives. They commute too much by car, they walk too little, they are too obese.

Americans also appear to love going out to eat much more than people in many other places, buy a new phone frequently, have a lot of subscriptions, and it adds up. Elderly parents are often placed in expensive care rather than taken care off by families, students go to expensive colleges and pay rent instead of living at home and attending a local public university, and so on.

You can talk a long time about the inequality in the American economy and the fruits of labour, which are indeed less evenly distributed than in other places, but this doesn't change the fact that given the standard of income and wealth of the average American household, everyone could live insanely more sustainable and financially secure lives by adopting a different culture.

[danans]

> this doesn't change the fact that given the standard of income and wealth of the average American household, everyone could live insanely more sustainable and financially secure lives by adopting a different culture.

I wholeheartedly agree, but the reality is that, today, unless you are willing and able to pay a large premium for "luxuries" like walkable neighborhoods and workplaces, the average American gets market segmented into the excessively large housing and excessive long commutes with no transit options.

The best way to address the underlying lifestyle issues is to make healthier lifestyles more affordable, but there are a large set of interests, from advocates of exclusionary zoning in city councils, to the fossil fuel industry lobbying heavily against good public transit, who are arrayed against any of the positive changes you suggest.

[SQueeeeeL]

Remember, city governments aren't there to help the population of the city, they're there to help the people in town with the means to engage in local politics. This normally means business owners and home owners.

There is a lot of research pointing to the benefits of walk-able cities and denser housing, but it will upset the power holders, so most of the population must live in expensive misery.

[AWildC182]

I think it's also worth noting that yes a lot of people want huge homes and conspicuous consumption, but that group is pushing up costs on everyone else who doesn't. Housing costs are growing massively as a fraction of income so with incomes stagnant, every year people have a little less to pay towards what they need and want beyond just having a home, regardless of size.

[Shivetya]

because that number is a lie and the replies made by those questioned keeps getting changed and twisted so as to serve the purpose of certain politicians

Go read [0] the entire survey yourself. In particular search for EF5B which is where the number that get misrepresented time after time. People need to quit taking for granted what they read, it is being used more to manipulate you than inform you. It is really distressing how easily people on this site are duped, I know you want to believe it but please just stop.

///* Question EF5B. How would a $400 emergency expense that you had to pay impact your ability to pay your other bills this month Response Percent I would still be able to pay all of my other bills in full 85 I could not pay some other bills or would only make a partial payment on some of them 14 Refused 1

Note: Number of unweighted respondents = 9,670. Question EF5B. How would a $400 emergency expense that you had to pay impact your ability to pay your other bills this month Response Percent I would still be able to pay all of my other bills in full 85 I could not pay some other bills or would only make a partial payment on some of them 14 Refused 1

Note: Number of unweighted respondents = 9,670. ///*

[0] https://www.federalreserve.gov/publications/appendix-b-consu...

[danans]

There is plenty of data beyond the $400 response on the Fed survey to support the argument that income inequality has hurt the American worker.

But even the $400 emergency expense story is more complicated that you present it to be. From the Fed survey results:

----- Question EF3. Suppose that you have an emergency expense that costs $400. Based on your current financial situation, how would you pay for this expense? If you would use more than one method to cover this expense, please select all that apply.

Put it on my credit card and pay it off in full at the next statement 33

Put it on my credit card and pay it off over time 16 With the money currently in my checking/savings account or with cash 45

Using money from a bank loan or line of credit 3

By borrowing from a friend or family member 10

Using a payday loan, deposit advance, or overdraft 2 By selling something 6

I wouldn't be able to pay for the expense right now 12

Other (please specify) 0

Refused 2

--------------

Note that the survey instructions ask the respondent to "select all that apply", hence the numbers don't add up to 100%. The total percentage of people who choses some combination of responses that don't involve paying with cash or an immediately paid-off credit card is up to 49%, perhpas somewhat less depending on the degree of overlap between the buckets.

That's a very large percentage considering what small amount $400 is. Even if there were a lot of overlap and the percentage were half, 24.5%, it would still be staggering.

And regarding Question EF5B, per the answers to Question EF3, many of those 85% of people who said would pay their bills despite the emergency expense, would be able do so only because they went into some form of debt to pay the emergency expense.

[Miner49er]

What about question EF3? Most people said they would have to sell something, borrow money, or simply not pay it at all.

[lukevdp]

Here are the results to that question:

Question EF3. Suppose that you have an emergency expense that costs $400. Based on your current financial situation, how would you pay for this expense? If you would use more than one method to cover this expense, please select all that apply.

Put it on my credit card and pay it off in full at the next statement 33%

Put it on my credit card and pay it off over time 16%

With the money currently in my checking/savings account or with cash 45%

Using money from a bank loan or line of credit 3%

By borrowing from a friend or family member 10%

Using a payday loan, deposit advance, or overdraft 2%

By selling something 6%

I wouldn't be able to pay for the expense right now 12%

Other (please specify) 0

Refused 2

[MiroF]

So a minority able to cover it with assets is what I'm seeing

[slg]

I don't see a financial difference between these two.

>Put it on my credit card and pay it off in full at the next statement 33%

>With the money currently in my checking/savings account or with cash 45%

If you are paying your credit card off in full every month, you aren't really going into debt, you are basically just working on a Net 30 payment schedule like a lot of businesses. Personally almost all of my monthly expenses (besides rent) go on credit cards that are paid in full every month. That method earns rewards and offers protection that wouldn't come if I did the exact same thing with my debit/checking account.

[danans]

It's a poorly worded question for sure. It really should have been broken into multiple parts:

Q: Yes or No: Do you have the money on hand to pay for a $400 emergency expense in totality without the need to borrow money or sell something to cover it.

If yes, would you pay with

- debit/cash/check

- a credit card that you will pay off at the next bill.

If no, which of the folowing methods will you use to pay?

- long term credit card debt

- ask a family member

etc ...

[uoaei]

> better management of personal financial capital won't be effective in helping people who can't cover an unexpected $400 expense, because those people have no financial capital to begin with

One of the biggest tells for who is on what side of the "the economy is strong! what's the big deal?" debate is whether they have invested capital. The economy being strong only helps people who are literally invested in the economy. This is not the case for a large swath of American citizens because they have no capital to begin investing.

The pundit/technocrat/plutocrat/professorial-managerial classes of people all take it as a given that investment is even a thing. It's the fish-asks-what's-water of armchair economics. If everyone's a shareholder of something, then sure, the economy being great means everyone is benefiting. But if that money is limited to circulating among people with financial instruments working for them (in a literal sense), then obviously there's a large portion of the population who is being left out.

[bluGill]

there are doctors making $500k/year living paycheck to paycheck. There are people working fast food who manage to save money. It is a spending problem.

The things you list do not help either group, but the fact is most people spend every penny.

[tmh79]

> there are doctors making $500k/year living paycheck to paycheck

This isn't true, at least in any sense of the word we would agree with. (Wife works in medicine, is a doctor at this level, we run in these circles). They are "living paycheck to paycheck" in the sense that they've set their stock brokerage to automagically deduct 10k usd/month from their bank account, and they pay 10k/month on a mortgage (which accumulate equity) and their checking account doesn't grow in size and their monthly float is the same. Some of them pay for private school which means they only save 3k/month instead of 10k/month, how oppressive. Their checking account "funny money they allow themselves to spend on anything" isn't growing and is the same, but their net worth is growing 15k/month.

[uoaei]

The assertions like GP are laughable every time they come up. Having no liquidity is not the same as living paycheck-to-paycheck. LP2P means not being able to scrounge up any money for vital necessities until the next pay period. Most doctors (and for that matter, most people who complain about high COL lifestyles while working in tech) can obviously pull a bit of cash from their investment accounts if need be. Yes there are fees attached but you can handle those. LP2P means you're living in your car if you can't get the money in the next 4 weeks.

[danans]

> there are doctors making $500k/year living paycheck to paycheck. There are people working fast food who manage to save money. It is a spending problem.

The existence of a statistically insignifcant number of counter-examples on either end does not negate the broader societal trend toward greater wealth/income disparity.

[sdnlafkjh34rw]

I don't believe it's purely a spending issue when things like childcare, education, and healthcare are growing at 2x the inflation rate. We have basic infrastructure costs in America that are spirally out of control that are really eating into wages.

[ativzzz]

A person making $500/k a year living paycheck to paycheck most likely needs therapy, not a financial advisor.

[gapo]

> there are doctors making $500k/year living paycheck to paycheck.

Can you provide a source for that please ? Also, it would be interesting to find how much of their expenses are paying back their insanely high tuition-fees.

[appleshore]

Except spending 60% of your income on rental housing is normal in major cities.

[ksec]

And there was a Ted Talk on this Topic

https://www.youtube.com/watch?v=th3KE_H27bs

[dcolkitt]

> Meanwhile, concurrent with those changes, the cost of things that used to be "basics", like health care, higher education, and housing, have skyrocketed,

The economic data simply does not support your argument.

In aggregate healthcare only constitutes 8.1% of US household expenditures. Education only constitutes 2.3%. It's simply infeasible that inflation in segments constituting less than one tenth of household expenses has crippled the majority of US households. Especially given strong deflationary trends in autos, apparel, furniture, appliances, consumer household goods, electronics, phone service, natural gas, toys, and media. Which in aggregate represents over 30% of household expenditures.

Shelter at 19.2% is a major expenditure item. But you're wrong that there's been significant inflation. The median price per square foot of American housing has not increased in real terms since 1992. (HN tends to be grossly misinformed on this since the community is heavily concentrated in the ultra-expensive Bay Area.) And this doesn't even account for mortgage rates falling by 60% since 1990.

It's true that Americans on average spend more on housing. But that's because modern homes are substantially larger than they were a few decades ago. Moreover the price per square foot metric doesn't reflect significant aggregate quality improvements like central A/C, better fire safety, higher capacity electrical circuits, more bathrooms, higher ceilings, better insulation, attached garages, and swimming pools.

Altogether the housing story does not reflect your broader thesis. If Americans were feeling overwhelmed by out-of-control housing prices, they wouldn't keep buying bigger and bigger homes. Other statistics tell similar stories. A record number of people are getting cosmetic surgeries. If healthcare costs were crushing US consumers, we wouldn't expect huge growth in Americans choosing to have elective medical procedures. It'd be like claiming there's an ongoing food shortage, while obesity rates are rising.

[1] https://www.bls.gov/cex/2018/combined/age.pdf [2] https://www.census.gov/const/C25Ann/soldmedavgppsf.pdf [3] https://www.aei.org/carpe-diem/new-us-homes-today-are-1000-s... [4] https://eurekalert.org/pub_releases/2019-03/m-nps030719.php

[SQueeeeeL]

Big houses are all that's built and is on the market. You can't buy apartments in anywhere except New York and Seattle. They also cant't build mixed housing that isn't single family homes in most cities because of zoning laws.

[dcolkitt]

And I'm totally sympathetic to that argument. If it was up to me, I'd nuke all zoning laws. But there's no real evidence that these bigger homes are imposing any significant financial strain in aggregate. The percent of household expenditures spent on shelter has barely budged since 1990 (19.8% vs 17.7%)[1].

Maybe all else equal we'd prefer to use rising incomes and productivity to stay in the same size houses. It's definitely plausible. Comparatively expenditures on apparel have fallen by nearly 50% since 1990.

But what isn't plausible is OP's thesis that housing is making us poor. (Well at least in aggregate across the US, it is probably making Bay Area residents poor.) At most you can argue that zoning laws are making us spend a constant percent of our growing paychecks on proportionately bigger homes. For which we're no longer deriving much marginal benefit from the increased square footage.

[1] https://www.bls.gov/cex/1990/share/age.pdf

[danans]

> In aggregate healthcare only constitutes 8.1% of US household expenditures.

Why do you think is 8.1% a reasonable number? Meanwhile, average annual health insurance premiums for employer plans for the last 2 decades have gone way up [1].

A significant portion of that increase has been paid by the employer, masking the increase in costs significantly.

> Education only constitutes 2.3%.

Education expenditure here is being masked by the debt used to finance a great deal of it, from student loans, to credit cards and home equity loans (often on a parent's home) [2]

> The median price per square foot of American housing has not increased

People don't buy housing in units of square feet. They buy access to shelter for themselves and their families near work, educational, and other advancement opportunities. The price of that access has increased, even outside the Bay Area.

> the price per square foot metric doesn't reflect significant aggregate quality improvements like central A/C, better fire safety, higher capacity electrical circuits, more bathrooms, higher ceilings, better insulation, attached garages

Most of these features are commodified to the point that they aren't reflected in price differences much at all. What increases prices are exclusionary zoning laws designed to inflate property values.

> A record number of people are getting cosmetic surgeries

$16 billion spent on cosmetic surgery [3], out of $3 trillion spent on healthcare overall. That's .5%. The vast majority of people are not getting cosmetic surgery. It's statistically insignifcant compared to overall healthcare costs.

> It'd be like claiming there's an ongoing food shortage, while obesity rates are rising.

Except nobody claims that there is a calorie shortage. You're using a straw man.

1. https://www.kff.org/report-section/2018-employer-health-bene...

2. https://www.investopedia.com/student-loan-debt-2019-statisti...

3. https://www.plasticsurgery.org/news/press-releases/americans...