The Buffalo News has published another one of my articles. You can read the original here. Some of you may have read this article thanks to Bill Crider’s blog. Bill provided the link and some of you commented insightfully here.
Or you can read the text below:
“I’ve worked for General Motors for over 20 years. I’ve earned over $2 million … and I’m broke.”
I was hired by General Motors to teach “It’s Your Money,” a financial literacy course. About a dozen GM workers signed up for the course. I opened the first class by going around the table asking each worker why he decided to take the course. That’s when one of the participants admitted he had no savings despite earning millions of dollars.
The other workers jumped in with similar stories. These were hardworking assembly line employees. Frequently, they worked 10 hours a day, six days a week. Some admitted they had six-digit incomes. Yet almost every worker in my class said that he had zero savings.
In the latest issue of the Atlantic, writer and critic Neal Gabler appears with a paper bag over his head. Gabler confesses he could not come up with $400 cash if an emergency struck. And Gabler says 47 percent of working Americans couldn’t come up with the money, either.
How did we get to this point in America where people who work hard, have graduate degrees and own homes find themselves so cash poor?
I found most of my GM workers, despite making a lot of money, spent a lot of money. The worker who uttered that statement about making $2 million working for General Motors over the years admitted that he had an all-terrain vehicle, Jet Skis and a boat. One of my suggestions was that he divest himself of some of these “toys” and bank the savings.
Few schools offer courses in money management. Gabler confesses he knows very little about money matters, which explains a lot about his current insolvent monetary position. But if Gabler had a course in handling money back in high school or college, he probably wouldn’t be in the cash-strapped position that he and millions of Americans find themselves in today.
In America, the middle class is being squeezed. Technology transforms jobs. The old Little Rock needed 300 sailors to man the ship. The new Little Rock needs only 64 sailors to do the work because of all the new technology. You can see this same scenario being played out in industry, health care and agriculture.
At the same time technology changes the workplace, students discover they need more and more education to make themselves employable. A generation ago, a high school diploma could get you a pretty good job. Now, many jobs require a college degree. And in order to acquire that college degree, many students plunge into massive student loan debt.
The total of student loan debts exceeds credit card debt in America. But the two debts go hand in hand. The same people working two jobs to pay off their student loan debts frequently resort to using their credit cards to pay for necessities when they come up short.
Young Americans also find themselves stuck in a “gig economy.” Gone are the days where you would work for a company for 30 years and get a pension. Now, many jobs are short term “gigs” where the worker is hired as a private contractor with little or no benefits. Once the project is concluded, the job goes away. And the stressful job hunt begins again.
How can stressed-out members of the middle class survive in this new, transitory economy? I have three suggestions:
1.) Lower your expenses. Do you need a 2,500-square-foot house? Downsizing to a 1,500-square-foot home would save a lot of money in heating, cooling and taxes. Do you need two cars? Do you need 500 channels? Reduce your expenses and the result will be money you can save or invest.
2.) Have multiple revenue streams. Your job may pay for your day-to-day expenses, but you might need a second job to keep yourself financially secure. Investing in high-dividend stocks can also provide needed cash flow.
3.) Take a money management course.
These steps should ensure that you’ll have at least $400 if an emergency strikes.
George Kelley, of North Tonawanda, is a professor at Erie Community College City Campus.
One word. Just one word: Insightful!
Dan, hearing people talk about their money problems is shocking. A woman who used to teach BASIC KEYBOARDING in the computer classroom before my COMPUTER APPLICATIONS class took the last College Retirement Incentive 10 years ago. She received $50,000 to retire (on top of her pension). She asked me what she should do with the money. I advised her to pay off her mortgage, pay off her car loan, and to pay off her large credit card debt. She thanked me and retired.
Now, 10 years later, she’s back teaching part-time. I was surprised to see her. “I’m back teaching because I’m broke,” she told me. Instead of taking my advice to pay off her debts, she “loaned” the money to her children. Of course, they never payed her back. Expenses grew and she had to go bankrupt. Now she’s back to work and living paycheck to paycheck. Very sad.
The really sad part is “of course her children didn’t pay her back”. Why? Did they just assume money from Mom was a gift? WRONG! If she didn’t make it clear, her fault, if they’re just deadbeats, maybe her fault again.
Rick, that Retirement Incentive was NOT a “Give Me a Loan, Mom” handout. Those children brought a lot of suffering to their mother with their selfish actions.
Great job, as usual, in explaining some of the elements of what is happening in our society right now. I made several comments on Bill’s blog about it, so won’t repeat them here, but your column seems to dovetail neatly into this article from a few days ago in the Washington Post: https://www.washingtonpost.com/national/from-belief-to-resentment-in-indiana/2016/05/14/d1642222-16fa-11e6-924d-838753295f9a_story.html
Deb, thanks for the link! “Fast food and hedge funds, that’s where we’re going.” Sad, but true. The manufacturing base of the U.S. shrinks and the number of well-paying jobs for unskilled workers continues to erode. But don’t worry. One candidate promises to make us great again!
Already commented on Bill’s blog too (several times!) but, as usual, you are right, sir. People really are clueless. Jackie’s sister and my cousin both paid cash for their kids’ college educations (then one of them dropped out mid-term!) and cars, and are only staying afloat because they were teachers with big pensions. What was the point of that woman asking your advice and then ignoring it? That’s why she is back at work and Jackie is sitting home relaxing and traveling to Florida two months every year.
Jeff, as you and Jackie know, debt is the big enemy of retired people on fixed incomes. The retirement check doesn’t get bigger but all expenses do. That $50,000 could have cleared away most of that woman’s debt and her expenses could have been manageable. But her vulture children convinced this kind-hearted woman to “loan” them her Retirement Incentive thousands. They never paid the money back even when they saw their mother drowning in debt. Now she’s in her 70s and teaching part-time just to make ends meet. Tragic.
G, does your coworker have any contact with her kids? Shame on them
Maggie, her kids continue to hit her up for money. But now, she doesn’t have any. She literally lives paycheck to paycheck now.
I guess those kids’ version of “real life” is to sponge. Maybe they’ll end up sleeping under a bridge one day, and then they came blame dear old Mom for being broke and homeless. BAH!
Wow. The Washington Post article & George’s really should give people something to think about. Sadly, there are too many people like George’s co-worker. I would have given her the same advice George did. I used to buy books from a book distributor’s rep. He and his brother won a lottery, and he quit his job. He asked me if I had any advice. I suggested he & his bro. each buy a duplex, with a very large down payment, so that if necessary, the rent from the 2nd unit could pay the mortgage for them, put $5-10K in a college savings for each of their kids, and put at least $40K in a savings. I doubt he followed my advice.
I paid off my house early and was able to retire at 50. What hurt me was medical insurance. When I retired, my med. insurance was fully covered by the $400/mo allowance I got and I could even have dental insurance, with nearly $30/mo left over. By the time I turned 65 and got Medicare, I was paying out of pocket nearly $400/mo. Medicare was a real blessing to me. I’m going to delay getting Soc Sec. until 68 if I can.
Maggie, you were smart in handling your retirement. But you found out what every retiree learns: prices of everything (especially health care) go up!
ps. Remember when the smart advice was to have a 6 month cushion for emergencies? Now it’s so sad that $400 seems out of reach for many people.
Maggie, I knew plenty of people who were cash-poor but I had no idea 47% of Americans can’t come up with $400 in an emergency as Neal Gabler says. That’s scary.
That was amazing to me too, that $400 thing.
Jackie had to be 55 and work 33 years to maximize her pension. We had taken a pension loan at one point because the interest was amazingly low, and paid off the high-end credit card bills first. That was one thing Jackie’s father was right about. He was always obsessed with debt and always preached paying off your credit cards in full every month. As soon as we could do that we started getting ahead.
We agreed she would work one more year to get ahead by taking as much per session work as possible, because as a Tier I employee her pension was based solely on the last year’s salary (rather than averaging the last three years, as later employees did). Plus, the entire $16,000 extra she made was added to her salary in figuring the pension.
Sadly, most people do not have a clue.
Jeff, Jackie’s father is right about credit card debt. It’s a sink-hole for many people who only pay the minimum payment each month. We also know a couple who moved to Florida secretly to avoid their leech of a son. The father was the Chairman of the English Department at my campus. His wife taught at City Honors High School. They retired and then their son lost his job and moved into their basement. He lived there for five years just playing video games and hitting them up for money. All their attempts to help him find a job and become self-supporting didn’t work. Their son was draining all of their savings. In desperation, they secretly sold that house in Buffalo and bought a patio-home in Florida. While their son was spending the weekend with his thuggish buddies at the casino, they moved all their stuff, changed the locks, and are now hiding out in Florida. Who knows what their son is up to now…
Wow. Amazing story. We know people with kids like that – sometimes drugs are involved – and maybe they had to do that to survive.
Jeff, I think their son has a gambling addiction, but they refused to acknowledge it.
Or that opportunity.
There was only 2 times in my life when I didn’t pay my credit card bill off. Once was when I went to the first Bouchercon in Toronto. My books didn’t get there, so I didn’t have any sales, and it took 2 months to pay it off. The other time was when I bought a bunch of first editions of Booked to Die. I called a lot of Borders around the country. I was able to pay off the credit card in 2 months, mostly as I was making a good profit on the sales of the book, many to other dealers who immediately doubled or tripled the price they paid me.
The only way I could handle a mortgage was I considered it rent. I paid extra each month, and paid it off within less than 20 years of the 30 year loan. Of course the mortgage was only $25K.
Maggie, my friends with the slacker son had their house paid off before he moved into the basement. They had to take out a home equity loan to support him. Later, when they moved secretly to Florida, they had to take out a mortgage on the patio home. They’re swimming in debt now.
The best (recent) financial decision we’ve made is when we refinanced our mortgage a couple of years ago when rates were really low. We took a little cash out (our mortgage balance was very low) and paid off all of our consumer debt, pledging not to allow balances to creep up again. So far, we’ve been successful and, because our mortgage rate dropped so much, even with the increased mortgage balance, our monthly payment is less than it was and without any consumer debt, we’re banking everything we’ve saved. We have a 15-year mortgage, but we pay an extra $100 each month to principal reduction and we should be able to pay off our mortgage in eight years. That’s our plan–as long as we both stay healthy and employed. As the saying goes, man plans and God laughs.
Deb, you have a sound financial plan! Make sure if your daughters get a credit card for College you set the limit low (like $500). Friends of ours gave their daughter a credit card to use “for emergencies” at college. When the first credit card bill came in, it was $5000! The parents called their daughter immediately to find out what was going on. She was “treating” her dormitory floor (30 students) to a pizza party every weekend because she “wanted to be popular.” She also spent on “furnishings” for her new dorm room like a 60 inch HDTV, a new stereo, and a new laptap computer. Needless to say, the credit card got cancelled.
I guess someone really didn’t understand what an “emergency” constituted.
Well, I guess not having a 60-inch HD TV is an emergency. Oops, that means I have an emergency right here.
Rick and Jeff, “emergency” is an elastic word for some people.
Wow!
I’ve read it often: The middle class in the USA is going down the drain but couldn’t really imagine it.
But your examples here show how this can happen so easily …
In a way we’re lucky in Europe that Credit Cards are still not widely used as “Credit”, usually people pay there CC-bill off at the end of every month. And here in Hungary it seems difficult to get one and the conditions are horrible:
Interest rates of 30% and more – that’s usury imho!
PS:
Many people here make only around 600 to 800$ a month – no money left over at the end of the month and sometimes I wonder how they manage, especially when they see all those nice things from an US household on their tv-screens. US series are immensely popular here!
Wolf, many Americans live on the edge of economic ruin. The most common cause for personal bankruptcy in the U.S. is medical bills.
And most of those medical bill-related bankruptcies are filed by people WHO HAVE HEALTH INSURANCE! Why ? Because people without health insurance never get the opportunity to rack up medical bills–outside of the ER, people without insurance can’t get any procedures performed.
Deb, you are so right! The whole health care system is broken.
Related story in the news today: http://wwlp.com/2016/05/19/two-thirds-of-us-would-struggle-to-cover-1000-emergency/?utm_source=fark&utm_medium=website&utm_content=link
Deb, Americans are cash-poor. The “easy answer” to financial emergencies is to whip out the credit card. But that can lead to more problems. Thanks for the link!
Eight and a half years ago, when I switched from freelance speechwriting to writing genre fiction, I addressed the problem from the demand side: I became a homeless, itinerant housesitter. No more rent/mortgage payments, no utility bills, and sometimes a car and insurance thrown in for free. I pay for travel costs and food and entertainment (unless the gig comes with a wide-screen tv and satellite).
It’s not for everybody, but it’s working for me.
Matthew, it sounds like a life-style that allows you the freedom to write those wonderful stories that I (and plenty of other readers) enjoy.