How are you doing financially? Are you more successful than your parents were at your age? Do you think you’ve made better decisions than they did in early adulthood? Have you already achieved milestones that they didn’t until their late 30s or 40s?
It’s evident that despite higher education and outwardly perfect careers, most young Americans are still stuck in the cycle of dreading the mailbox, struggling to build net worth, not saving for retirement, and avoiding the topic of financial insecurity.
They too are on a trend that will keep them working their whole lives — like their parents — and dying broke.
Will Extra Work-hours Make A Difference?
According to this survey, nearly half of the American workforce would happily clock more hours at their current rate, and 29 percent believe their earnings will be higher in the coming year.
Why? They believe more hours, the next bonus, or extra income will help make ends meet.
While it used to be assumed that only high school dropouts or families living in economically impoverished communities would experience fragility with money, it’s now apparent that the issue is spread across every demographic. College graduates, employees with 401K matches, and even corner office six-figure income earners face financial instability daily.
This makes sense considering Americans also cite financial stress as one of their greatest ailments.
This is bewildering though, because low unemployment rates, progress toward salary transparency, and even net worth data is all over the news as proof of our ever-improving economy. So, if the economy is doing so well, why aren’t people’s personal finances?
It could be easily assumed that higher salary means higher net worth and that upper income households would be exempt from the epidemic.
But that’s not the case. Personal financial data provided by Bankrate and Pew found that only about 1/3 of Americans could cover a $500 – $1000 emergency with savings. In other words, 67 percent of us are unable to raise $500 – $1000 cash, even if our lives depended on it.
Additional research shows that Americans have 25 – 85 percent less net worth than in 1983. And even $100K to $150K income households are unable to scrounge up $2,000 cash for an emergency.
It gets even worse. A 2018 Federal Reserve’s survey discovered that almost 40 percent of American working adults can’t raise $400 cash for a life-saving situation.
This does not include the 12.3 percent poor people among us who struggle to survive each day. When these figures are combined, the percentage of Americans who are unable to raise $400 cash for an emergency goes up to 52.3 percent.
A 2019 Charles Schwab survey revealed a similar picture. Nearly two-thirds of millennials (62%) say they’re living paycheck to paycheck, and only 38 percent say they’re financially stable.
So, regardless the amount of income we make, the conclusion is the same: Most of us are lacking one important thing — Cash — which is an essential component of financial security.
With decades of stagnant wages, most middle-class Americans see only one opportunity to increase income — work extra hours.
Going Broke Involves More than Low or Stagnant Wages
Low or stagnant wages are often cited as the main culprit in the struggle to get ahead. But is it? At the root of it all, practically everyone spends more than they earn, no matter how much money they make.
Since consumer credit entered the scene in the mid-1700s, a shift toward immediate gratification, discounted need for savings, and reliance on credit for emergencies have plagued Americans.
While generational optimism has been part of the great American heritage, so are poor financial behaviors, emotional purchasing decisions, and the desire to sacrifice our own health and financial stability to impress others.
So, in reality, more hours and greater income don’t mean greater savings or higher net worth, it just means Americans will max out their purchasing power at the next level.
For example, when was the last time you saved that bonus as intended? Do you habitually put away part of your tax refund each year? Hardly anyone does.
And this is part of the problem. People who repeatedly practice these unprofitable habits year after year eventually find themselves in the poorhouse later in life.
Are You Avoiding Being A Statistic?
If you’re already struggling with debt, living paycheck to paycheck, and surviving a life that merely appears successful, it’s time to realize that you’ve inadvertently become one of “them.” But the need to buy things so others can “see” your success has only provided the shovel with which to dig your grave.
If we talk averages, you’ll work 40 hours a week, for 40 years of employment, earning an average income of $59,000 (2016 median household income), and by retirement your gross income will total $2,360,000.
There’s no way you’d want to work all that time and earn that much money just to squander it away and struggle as badly as your parents or grandparents have done or doing.
Taking steps now to prioritize savings, living below your means, and paying off debt as fast as possible can alter your path and help you avoid the challenges older generations are grappling with.
You’ve probably been told to save more and spend less. You’re aware of this. But neither you nor your friends are actually doing it. Maybe because old age, being unemployed, or struggling with medical costs seems so unlikely and distant to you.
Then again, I congratulate you on your college education and impressive salary. These two accomplishments give you a great advantage over prior generations.
However, to maintain this positive course, you must find a way to prosper in your current situation. Stop relying on the next bonus or pay raise to provide happiness. That’s what prior generations did. What will you do differently to prevent financial destitution, even after all your hard work?
To learn more about bucking the trend and practicing positive financial management, consider reading my new book: Pennies to Power: How to Use Your 20’s to Gain Financial Independence for Life.
Thanks for reading.
What Are Your Thoughts?
Do you think you’re doing better than prior generations? What have you bought recently just to impress people? How differently would you feel if you had thousands in savings versus stuff to make friends think you’re cool? Does reducing your lifestyle seem possible to you?