Measuring Our Financial Insecurity
A report last week from an outlet called Moneywise found that for 65% of American women personal finances were their greatest fear. We don’t have data for the men but one can infer that the percentage is probably close to that. The study was published in early March by a banking enterprise called Laurel Road. Laurel Road Financial Survey: Annual Survey of Women’s Personal Finances
This prompted us to look at consumer expenditure information published by the Bureau of Labor Statistics. The BLS data is from 2023 and some of it seems pretty weird even though the survey is based on 134,000 households. Here’s a quick summary of the core data from which our stress emanates.
Average household expenditures $77,280
Housing cost at a percentage of after tax income 33%; transportation 17%; food 13% ($10,000 a year but 40% is for dining out);
Health insurance 5.2%; out of pocket health costs 1.6%; voluntary retirement 2.5%; personal care 1.2% (avg $80/mo); entertainment 4.6%( $300/mo); education 2.1%; apparel 2.6%.
Aside from how much we spend on dining out, this data does not seem to reflect prodigal habits. And it only sums to 70%. The weird stuff is education costs at 2.6% or $1,656 a year. This may be an aberrant number because people with kids in college have huge outlays while most of us have close to none. A column for “legal fees” nearly doubled from $158 per year in 2021 to almost $300 per year in 2023. Go figure.
This writer spent a lot of career time looking over expense data provided by clients. And the areas that struck me of greatest concern aren’t easily found in the BLS data we just summarized. They are best termed “leaks” in the fiscal ship that we easily overlook.
We love big vehicles. 20% of new vehicle sales are pick-up trucks. Pick-ups start at just under $40,000 but the bells & whistles push most buyers to $50,000 and beyond. Another 60% of new car sales are SUVs. These vehicles get more and more sophisticated and that means they are not just expensive to buy but to maintain and insure. Manufacturers have us convinced us that we need all this space. But at what price? I invite readers to study what they find in the back of the dozens of pick-up trucks they observe each day. My informal study concludes that the largest cargo to be found in 21st century pick-ups is the ego of the driver. Strangely, that part is found in the cab and not the bed of the truck.
Credit card debt. At an average of 28% it is 4x the rate you pay for a mortgage. At 28% the debt doubles every 31 months unless you are paying it down. This is the termite that destroys most financial plans. Just about every client I met with fully grasped how beneficial it was to put money into retirement plans because it reduced taxes and was often matched by an employer. But saving $7,500 a year through a 401K and having it matched is effecting little progress if you are paying high interest on consumer debt and there is no plan to eliminate it. Americans scared by the Covid pandemic showed courage in reducing consumer debt in the period from 2020-2021 but it’s back and rising at the same rate it was before 2020. Consumer debt has doubled since 2011.
Access to the Outside World; Phones; cable; internet. In 2022 US News and World Report found the average cost was $217 a month; as much as all other utilities combined. These are financial indulgences that never end. The Bureau of Labor statistics list seems to ignore or at least “bury” the cost of telecommunications. Managing these costs is like wrestling a snake but if you want incentive to try, promise yourself that next month you will compile a list of what you pay in consumer debt (excluding home mortgage interest) and what you pay for phones, internet and cable type programming. Then add about 20% to the cost because you first pay income taxes before you are left with the money to pay these recurring charges. Yes, you need a cellphone and access to the internet. But, from there, the return on investment gets thinner and thinner.
Vacations. This is another place where “wants” commonly triumph over needs. Disney or the shore may be traditions but they are pricey ones. Note as well that when in these locales it’s easy to tack on other indulgences with miniature golf at the low end and a session at the craps table on the far end. If you have a recent history here, try hauling out the credit card receipts from last years’ trek and ask yourself whether a staycation with no lodging cost but local day trips and meals out could be nearly as restorative as the journey to Orlando or the Wildwoods.
Education. This is a place where families develop patterns of “buying the best” because we were taught it was always a sound investment. But, much as with cars, you can tell the difference between Honda Accord and the Audi S5 but does the ride merit twice the cost? The world of education choices is immense and range from on-line courses to local to top-rank on campus schools. Education is an investment and thus, a place where head needs to prevail over heart. It’s natural to want the best for our kids, but we all know that Hondas go the same places as Audis. Education is a little different. But isn’t the real difference the input of the student as much as the output of the school?
Americans are insecure about money because we never really study it except in a macroeconomic sense. Whether going through divorce or not, all of us would benefit from studying the input (i.e., our paystubs) and grasping how we are managing the output (i.e., what we are paying for all we buy).
We like to think that our expenses are beyond our control. That is, of course, a fallacy we embrace because controlling expenses can mean painful choices. While we can lament these choices, realize the menu of our ancestors. For them 80% of budget was food and it rarely included meat. 20% of budget was for housing, which was space in a room with 8 or more strangers or family who slept on mud insulated with a somewhat fresh coating of straw. It was the “simple life” we all profess we are missing. Our problems are “relative” and our “relatives” from the period before 1900 would tell us we are rich beyond their wildest dreams.
Ready for a pop quiz? Here is a link you can open: Many American consumers don’t grasp the basic math of inflation