We walk among people who are sacrificing their future for their present. Most do not understand what they have done. They will have a BMW now and retire in poverty.
People have little natural awareness of their money on a 30 year timespan.
Humans are notoriously bad at long-term planning. This is why we’ve polluted the environment and why we refuse to decrease CO2 emissions even in the face of great evidence of disastrous climate change. Do you know how much money you need for retirement? Do you know the factors to include in the calculation? (hint: rate of return, inflation, lifespan, burn rate, grandkid college seed money requirements, etc.)
Most people don’t know how much they need to retire. $1M may sound like a lot now, but in 30 years it may not be enough to retire comfortably.
People also don’t know the time value of their money. In other words, if you invest $100 today instead of spending it, how much spending power will you have in 10, 20, or 30 years?
How much have you paid in the last year in credit card interest? Late fees? Overdraft fees? How much have you paid to your financial advisor? How much will you pay in interest if you take out a 30 year mortgage but only stay for 10 years?
These are big numbers. They will control the quality of your life and the quality of your retirement. If you control them, you can live the good life. But if you don’t know them, they will control you. Most people are controlled by them.
People are ashamed of being broke and in debt.
A friend once described a man she dated from the Internet. She said he had an American Express Black Card. I think that means he had a net worth of at least $15M. The TV offers silver, gold, and platinum cards. They show people on great vacations. But they don’t show people with $20k in credit card debt staring at their bedroom ceiling. Nor do they show all the vacations absorbed by credit card interest payments.
Credit is celebrated, but debt is not.
Debt is shameful. Most people have it, but nobody wants to brag about their debt. Salaries and debts are taboo to discuss, that’s why we have anonymous salary websites. Often, people are uncomfortable talking about their money because they don’t want people to know about their debt. They don’t want people to know that their apparent affluence is an illusion. If you talk about money, they’ll steer the conversation elsewhere.
People fear changing their lifestyle and losing financial freedom.
When you have $20k of debt hanging over your head, it’s easier to make the minimum payments and focus on other things in your life. I have been really good at that! Every day the thought would come up, and I’d just smile and think about something else. After all, I had a great income. I didn’t want to lose the freedom I’d worked so hard for. The freedom to buy almost anything I wanted within the next month. Not right now, of course, because I’d have to wait until the next pay check. But that’s not too long.
I feared paying off the debt and losing my financial freedom before I’d ever really tried it. Now that I’ve been “on the wagon” for a few months, I realize that I didn’t have much to fear. Truth is, there are a lot of satisfying things a person can do without money, especially if they’ve been spending their money on toys, toys they’ve haven’t had time to play with because they’ve been too busy trying to… earn more money for toys.
I’ve mentioned the books I’ve been reading to several close friends. People hate being told what to do about money, so the best you can really do is say, “Hey, there’s this great book, it’s helped me a lot financially, maybe you should look at it.”
Some friends respond positively but don’t really take action. Others say, “Oh, I’m too busy right now, I’ll read it next month.” (It’s an audio book, and I know you have a 2 hour commute every day :-P).
At work, I’ve had several colleagues look at changing their living arrangements recently. It’s been interesting to see how much money they’re willing to spend on rent. Housing is most people’s #1 cost, so I believe how a person spends on it will often reflect on their overall spending.
When I was 12, I read the “Dragonlance” series of books, which featured a maged with cursed vision. Whenever he looked at a thing, he saw it aging, withering, and dying. That’s how I feel right now. When I see a person paying high rent and failing to save, I see their retirement fading out of existence.
Beyond anecdotes, the statistics for retirement in America look pretty grim.
Early baby boomers – born between 1946 and 1955 and now 58 to 67 years old; median net worth in 2010 of $173,480, down about $67,850 or 28 percent from 2007.
Late baby boomers – born between 1956 and 1965 and now 48 to 57 years old; median net worth in 2010 of $110,870, down $36,800 or 25 percent from 2007.
Why so much agreement? Well, for starters, there are 14 million people under the age of 30 with outstanding student loans. The average debt load for someone who graduated in 2012 was a staggering $29,400 – but the unemployment rate in that age bracket was 11.6 percent in November and, for those who are employed, the average annual earnings for those in the 16-24 age bracket ranges from just over $21,000 for women to just over $24,000 for men (regardless of educational attainment, though it improves significantly for those over 25 with college educations). So many recent graduates are saddled with a debt burden close to or larger than the average annual salary for someone their age, and they’d be lucky to find a job at all.
The average college graduate obtained a degree in 2012 with $29,400 in student debt, up from $18,750 less than a decade before in 2004, according to a new reportreleased Wednesday
“The amount of student debt has tripled since 2004 and stands today at nearly $1 trillion.”
More than three-quarters of renters between the ages of 18 and 24 spend more than they earn every month, according to a survey of 1,000 renters (of all ages) by Rent.com. This is the case even though 17% of respondents in that age bracket say they’re willing to live with roommates to save money.
I’d like to pretend that there is good evidence we should have hope for the future of American retirement, but I haven’t found it yet. But there is hope for anybody reading this blog. Everyone can have a good retirement, but it takes planning and delaying gratification.