Our Financial Failings - Family Savings Look Scary Across the Board

[Jon8503]

By Neil Irwin
Washington Post Staff Writer
Sunday, March 5, 2006; Page F01

Meet the typical American family.

It has about $3,800 in the bank. No one has a retirement account, and the neighbors who do only have about $35,000 in theirs. Mutual funds? Stocks? Bonds? Nope. The house is worth $160,000, but the family owes $95,000 on it to the bank. The breadwinners make more than $43,000 a year but can't manage to pay off a $2,200 credit card balance.


Mid-Career
Max Out Contribution Limits To Prepare for Retirement
Households headed by someone age 45 to 54 would appear, at first glance, to be in better shape than their younger counterparts. They make more money, $61,100 a year, and have a six-figure net worth.


Upper Income
Bring Savings Rate in Line By Curbing Some Expenses
Upper-income Americans suffer from some of the same problems as other families but may not know it.


The Retired
Home Equity Can Be Changed Into Cash
Retirees on average are living on very low incomes -- a median of $24,400 -- but have significantly more money tied up in their homes than other low-income Americans.


Lower Income
Rein in Spending to Build A Cushion for Emergencies
The biggest challenge facing lower-income Americans is that they don't make enough money. That statement may seem so blindingly obvious as to be unhelpful, but financial planners say there are ways to boost the finances of those with a family income of $25,700 a year -- short of helping them find...


The Young
Capitalize On Time to Lift Meager Savings
Households headed by someone under age 35 have one big factor in their favor: time. These families and individuals tend to have piddling savings -- a median $14,200 net worth, and only $1,800 in cash savings among those with a bank account.

That is the portrait of the median American household as painted by the Federal Reserve Board's Survey of Consumer Finances. The survey, which does not distinguish between sizes of families, nevertheless offers the most detailed look available of the balance sheet of U.S. households.

The Post asked a half-dozen financial planners to review the Fed data about what different groups of Americans own and what they owe. We asked them what advice they would give someone confronting the financial situation faced by the average American, using median numbers, or the midpoint at which half of the population is above and half is below each indicator.

They don't like what they see.

"This is awfully sobering," said Peter Speros, managing director of Sullivan, Bruyette, Speros & Blayney Inc., a wealth-management firm in McLean. "These numbers are just so much worse than I would have thought. It's a real eye-opener."

Specifically, Speros and the other planners said, if the average family walked into their offices, they would sit them down and give them some tough talk. Time to pare back expenses, the financial advisers would say, in order to build a cash reserve big enough to get everyone through a layoff or other unforeseen adversity. And the family would get an earful about saving more aggressively for retirement, so members could have some hope of retiring at a reasonable age and maintaining the standard of living they and their family are accustomed to. Only 49.7 percent of American families even had a retirement account in 2004.

Those at the median are not the only Americans who need help. The planners had advice for the typical family headed by someone who is young, middle-aged, retired, and for the affluent and poor. The bad news: Each of these groups need to do some things differently. The good news: Their financial problems are not hopeless.

...........One thing I say is why do they let the credit card companies run wild and do anything they want. It seems everything I read is financial trouble stems from the credit card companies. They could for one thing be more restrictive on who gets the cards instead of the family cat, teenagers, etc. Also, not allow them to randomly jack interest rates to the sky which only causes more problems. If a person can't pay @ 6 percent how can he pay at 30%.

http://www.washingtonpost.com/wp-dyn/content/article/2006/03/04/AR2006030400238.html

[boobooday]

1. Every type of lending institution in this country

has been allowed to absolutely rape their customers through interest rates and special charges.

It makes me think that the overall plan IS insecurity for the American people -- financial insecurity, employment insecurity, health insecurity, and insecurity in our old age. Not the least of which is the fearmongering about terrorism, etc.

Secure people are able to stand up for their rights, while insecure people must keep their noses to the grindstone and cling to any hope of future security.

[Wcross]

2. You can save for retirement if you make sacrifices.

I don't eat "out" unless I am on a road trip. I don't go to the movies, I watch them on DVD using netflix. I don't take vacations except to visit my parents. I have a new vehicle but it was the cheapest model available (think handles to roll down the window and only an am/fm radio). I own my own home but its total cost was less than one years gross income. I grow my own vegetables and fruit. I cook from scratch. I don't have a large wardrobe and don't own any jewelry at all (including a watch). In a nutshell I am a minimalist.
I am able to put away 17% of my income in my 401k and fully fund my roth IRA. I won't be that old geezer you see down at the grocery store sacking your grocery items.
You really have a choice to make. You can live beyond your means now or you can make a sacrifice and enjoy your golden years.

[Katherine Brengle]

4. Kudos --

Sounds like you are being very cautious. In my house, we have no credit cards, I try to keep food costs down by baking my own bread and making most meals from things like dried beans and rice (we are vegan), and we do try not to waste much money on things like eating out and going to movies and this kind of thing.

I am also lucky in not having much affection for jewelry--the only pieces I have are my engagement ring and wedding band (which I leave off most of the time because I have a weird phobia of getting them dirty, lol).

My husband also has a retirement account through his job (he's a police officer), so this is very good--it only has about $1,600 in it, BUT we are only in our early twenties, with a young child and some college debt, so I think we are on the right track in this respect.

Right now, it's hard, we don't get to save directly (although he does through his retirement account) as everything goes toward paying bills and college loans, but I think we will be able to put away more as our loans dwindle in the next few years (we have a total of about 28K between both of us, which is pretty low as far as student loan situations go).

I think that we are in a better place right now than our parents were when they were our age, and both of our sets of parents own their own homes and have significant savings, so this is a good indicator to me.

[Jon8503]

6. Kudos to you because you guys are doing it right. These are the

things my parents taught us growing up such as your baking bread doing without unnecessary things. This is why the gasoline shock is so hard for a lot of people. Back many years ago, it actually was at a higher cost, however, we had more disposable income because we weren't buying ipods, plasma screens, lots of jewelry, etc. As a result the gas was more affordable to us.

However, as what I am saying we must take responsibility for our own lives, the government needs to crack down on those banks and credit card companies that feed on those that need more help and assistance in managing their lives.

[Wcross]

9. As long as you stay on track you will be in great shape.

Starting a retirement account so early in life gives you the advantage of time. If you go to this link ( http://www.bankrate.com/brm/calc/401k.asp )you will be able to see how your savings will grow over the years.

Ask someone in deep credit card debt how they would feel if it could all go away. That ought to be enough to swear them off forever.
As long as you don't fall into the "keeping up with the neighbors" syndrome you will be in GREAT shape!

[cornermouse]

5. You are sadly mistaken.

One serious illness and hospital stay (something that becomes inevitable as you age) and it will all be gone.

[Katherine Brengle]

8. This is also very true --

Because we live in a society where one must pay to be sick, and sometimes to die, this is a danger that hangs over every one of us... but it also is not a reason not to try to save (I don't think you meant it this way, just pointing out the obvious).

[cornermouse]

17. You're right.

I am pointing out the obvious. And while not saying that we should go out and spend, spend, spend, I am also pointing out that all the self denial and scrimping in the world won't do anything to help any of us retain enough money to pay for our own funeral. And as for leaving anything for our children? They put the finishing touches on stacking that deck against us last year.

[Wcross]

10. I have long term disability insurance.

It costs 10 dollars a month but for the price of a pizza I have it covered.

[cornermouse]

16. It takes a lot of pizza to cover one $100,000+ stint in the hospital.

What do you plan to do for the second $100,000+ stay?

[Wcross]

19. I am fortunate enough to have health insurance.

I have stayed at a job I really don't enjoy due to the good benefits. I do feel sorry for those with no insurance and think we need to do something about it. In the meantime I have it covered.

[Katherine Brengle]

21. Exactly--an insurance plan worth having will cover unforseen

illnesses and hospital stays. Of course, many insurance plans are far from comprehensive and many Americans have no health insurance at all, which is, imho, one of the biggest problems facing our society.

[cornermouse]

27. Having health insurance, I am sure you are well aware of the

fact that most insurance companies have a cap amount per year after which you are on your own.

Another tactic they have used in the past is to raise your monthly payments till you simply cannot afford to pay them.

[Wcross]

28. Runaway medical costs are to blame.

The increases in medical costs are double what inflation is running.
I know a guy I used to work with who got into a health care related job. He earns 50,000 a year. What does he do? He works for a company that rents specialized surgical equipment to a hospital. He has one co-worker. They have three sets of equipment and his job is to clean the equipment after surgeries and keep track of what the doctors use so they can bill for the use. All the surgeries are done in the morning. He and his co-worker split the on-call time so every other week he is on call. In the year he has been on the job he has never had to go in on call. He works from 7am til about noon every day. 50k a year isn't bad for a 25 hour work week.
Oh, we are paying for it out of our medical care expenses.

[cornermouse]

33. Was your friend working there in the 80s?

During the Reagan era? Because we had high medical costs back then that did not require surgery and they just kept raising our insurance ever 3 months or so till we absolutely couldn't afford to pay it.

[Wcross]

34. No he wasn't.

Medical costs have been outpacing inflation for a long time now. The story is just an example of why the costs are soaring.

[leftchick]

3. if you pay off a credit card Homland Security pays a call

http://www.shns.com/shns/g_index2.cfm?action=detail&pk=RAISEALARM-02-28-06


not a good incentive for getting out of debt.

edit: I fixed the stinkin link

[Jon8503]

7. Hey leftchick, could'nt get that link to pull up what is the deal with

Homeland security if you pay off your card.

[leftchick]

13. Try this...

sorry about the first link.

http://www.shns.com/shns/g_index2.cfm?action=detail&pk=RAISEALARM-02-28-06

<snip>

They just paid a hefty chunk of their credit card balance. And they learned how frighteningly wide the net of suspicion has been cast.

After sending in the check, they checked online to see if their account had been duly credited. They learned that the check had arrived, but the amount available for credit on their account hadn't changed.

So Deana Soehnge called the credit-card company. Then Walter called.

"When you mess with my money, I want to know why," he said.

They both learned the same astounding piece of information about the little things that can set the threat sensors to beeping and blinking.

They were told, as they moved up the managerial ladder at the call center, that the amount they had sent in was much larger than their normal monthly payment. And if the increase hits a certain percentage higher than that normal payment, Homeland Security has to be notified. And the money doesn't move until the threat alert is lifted.

[Wcross]

15. Thats the first thing a suicide bomber would do.......

..pay off their credit cards before they blow themselves up!

[Jon8503]

29. Good God, ya right, pay 6,500 on your credit and this calls for

Homeland Security. No wonder they can't find the real terrorists. Ya a bomber is going to be concerned about paying off his credit card before he kills himself.

[leftchick]

30. What I find so timely about this is

I am planning to pay off my Visa this week to the tune of 6100.00! I will let you know if I get a visit.

[Wcross]

35. WAY TO GO LEFTCHICK!

That has to be such a load off your back to rid yourself of that payment! I hope it wasn't from your tax return. If it was you have to raise your exemptions so you aren't loaning the government money interest free for a year.

[Deja Q]

12. Well, I've got a couple years to go. Besides, buy a gun and DHS would be

called too.

Your link doesn't work, BTW. :)

[Deja Q]

11. Hmmm

Stocks and bonds. Why invest when those who tell you to are quietly dipping into the till you're putting your money into?

Corporate leaders have tarnished trust. If we're to trust them, they need to become respectable again.

Still, many of us are at fault for getting into debt. But many people ARE working to pay things back and not cheat via bankriptcy; even before the change in laws. All we need are our jobs to continue to do so and all these financial problems, across the board, disappear.

And if there is an imbalance in pay in America, then the cost of living needs to be adjusted as much as the incomes being lowered.

Hell, we're only 300 million, as a country. We're very small compared to the countries of the world who'd need far more juice to keep their kitchens running...

[supernova]

14. I haven't had a credit card

since I got divorced 8 years ago. When I left my marriage I made sure to pay it off. And I haven't gotten another one.

I do have a debit card with my brokerage account. But that gets paid off every month. I can do anything I want with it and no one has ever not accepted it. I can get plane tickets, hotel rooms, rent cars, so I don't see a need to pay for a charge card.

I own my home outright and I drive a 14 year old car, which I will replace with another older car shortly and I will pay cash.

I don't want to owe money to anyone. Period.

[Katherine Brengle]

24. Amen to debit cards--only spend money that you actually HAVE and

you won't be in the kind of astronomical debt many Americans are in.

Using credit cards is a choice--and one we should not make if possible.

[electron_blue]

18. why are people so addicted to spending?

I have a family member who talks poor. He is so poor off. YOu should hear his tales of woe. They are one step away from homelessness, if either of them loses their job, they're in trouble. Their kid is going to college this fall, omg where will the money come from? They have to get a car for the kid for college, where will the $ come from? On top of that, one of their dogs is very sick, requiring lots of $$ to save it, they are in major debt because of improvements to their house.

But.... their home improvements were to add an external elevated hot tub, enclosed, and to add a second living room to their house. Their dog that is so sick is pedigree, they paid close to $1000 for it. It's also a dog weighing over 150 lbs that needs $50 - 100 worth of dog food a month to feed it. They also have 3 more dogs just like the other one to feed, pay for, etc. They own 2 new cars, replacing the 2 new cars they had just a few years ago. They are also paying off substantial debt for a 65-inch plasma screen TV. About half of all their meals come from restaurants. They own a $1700 vacuum cleaner. Et cetera.

They make the most money in my family. And have the least savings to show for it.

Seriously, they do not *get* that they should/could make different decisions about almost everything in their life.

[Wcross]

22. They want the illusion of wealth.

They probably look at some TV shows like 90120 or "The O.C." and think thats the way everybody else is living. "My name is Earl" is closer to reality.
Me, I have the illusion of poverty going for me!

[Katherine Brengle]

23. Good gracious, I am not even 65" TALL!!!

That's insane.

People who live beyond their means by choice baffle me. I understand if people take out loans for college--most of us would never be able to go without borrowing, but new cars and plasma screens and hot-tubs are luxuries, not necessities. No one should borrow for luxuries--it should be illegal--and this includes using credit cards for luxury items.

Ridiculous. I'd tell them to shove it.

[Wcross]

26. Really- and what does it take to be a 1000.00 dog?

Geez, they PAID for a dog? Earth to idiots, a dog is a dog. You don't have to buy a dog, there are thousands executed every day in our animal shelters because (among other things) people have to stroke their egos by buying pure breed dogs.
I "rescued" my mutts and they seem to know they went from a bad situation to a great one. I doubt a bought dog understands something like that.

[Ishoutandscream2]

31. Amen. Rescue dogs for goodness sakes

I also live in a community where it is so "live like the Jones.'" Hummers, SUVS out the wazoo, etc.

We have a 96 camry and a 2000 Sienna van (three kids). And yes, our mutt of a dog, Tiger, rides in our dirty, reliable van. We saved him from being put to sleep, and he's the best doggie in the world. And all out of pocket, including shots etc., 75 bucks.

We may not have the great looking vehicles, or the best looking dog, but were not swimming in debt in order to compete with the Jones'.

[Wcross]

32. I bet Tiger loves you more than a 1000.00 dog ever could.

Somehow I feel that dogs know. I remember when I brought Angel back to my house she had been living in the remains of my neighbors burned down house. I decided she needed cleaning so I put her in the tub and turned on the shower, at first she freaked out. By the time she was clean she had both paws on my neck licking my face.


Here she is today happy healthy and secure at the last home she will ever need.


BTW- How do they afford all those nice things? Their in debt up to their eyeballs!

[electron_blue]

37. what a pretty pup!

I don't know if their debt situation, except they claim they are incredibly short on money all the time. I know that several years ago they came into some money and I think they spent it all. Not a fortune, but enough to pay for a lot of this. I am pretty sure their combined income is about $90-100K, in southern Georgia, which doesn't have a very high cost of living, if you know what I mean.

[electron_blue]

36. I agree, totally. Their daughter works at an animal rescue group.

Go figure. They can't even see their hypocrisy.

[DenaliDemocrat]

20. Do you think Credit Cards have officially killed fair labor?

Think about it. I know a lot of people who use their credit cards to live, oh sure, they put crap on them, but they also put groceries, gas, etc., then make the minimum payment. I think that all of that free credit card money has given people a false sense of income. They do not scream about working 40 hours a week and not being able to buy the kid Huggies and milk, because they just charge it and forget it.

It is all a vicious scam by corporations. Give em "free money" (or so it seems) from easy to get credit cards, keep the interest high but payments low, and in return corporate america can keep real wages below anything liveable because people just put it on the old plastic. Make credit cheap, easy, and fun, and there you go.

Then when they die, take all of their assests to pay off the balance. The masses are quiet because they are still getting the essentials, they just do not realize that they are sacrificing their future for it.

[Katherine Brengle]

25. Excellent points -- a must-read post, imho. n/t

[electron_blue]

38. Wow. great. Yes, what great insight.