I usually write about personal finance from an individual accountability perspective. And there are so many stories out there (including mine) about irresponsible behavior being the cause of many people’s money catastrophes. But I think it’s important to also acknowledge that we live in a perfect storm of factors practically designed to lead more and more people down the road to financial ruin (or at least constant struggle with finances). As Elizabeth Warren and Amelia Warren Tyagi put it so eloquently in the first line of their book All Your Worth: “The rules of the game have changed.”
Income stagnation and widening inequality (rich people taking most of the financial gains) are big parts of the picture. These charts paint it better than I ever could. Suffice it to say, if you (like Elizabeth Warren’s mother) had to take a minimum-wage job to try and keep making mortgage payments, it wouldn’t happen.
Good-paying jobs that don’t require a college degree are in steep decline. But college tuition has skyrocketed. For many that means starting out life with an ever-bigger student loan burden. And the resulting salaries for recent grads in the past decade have hardly seemed worth it. There have been brighter reports this year, but chances are if you came from a low-income background, that college degree is not only going to incur higher debt but lower lifetime earnings than for kids from higher-income families.
Access to credit and the general attitude toward it have contributed. If your parents (like mine) were born in the 1930s, credit cards with revolving credit (you know, the kind we have nowadays that you don’t have to pay off right away) weren’t even available until they were well into adulthood and used to functioning without them. By contrast, many adults today were seduced into applying for their first credit card at a college fair, with no instruction on how to manage it intelligently.
So shouldn’t parents be teaching their kids to know better? Well, people my parents’ age were barely aware of revolving credit, and turns out 72% of parents experience at least some reluctance to talk to their kids about financial matters!
In addition, the number of consumer goods considered to be needs — from toilets to washers and dryers to dishwashers to smartphones to computers to cable to cars — has grown exponentially since the 1890s to today, as this article shows. And really, now that more people are living alone and many families need both parents to work to get by, many of these conveniences are necessary to keeping up our pace of work outside the home.
To make matters worse, the traditional “three-legged stool” of retirement — employer pension, Social Security and personal savings — appears to be broken beyond repair. I have never worked at a company that offered a pension. That plummeting blue bar in this graph is the nearly extinct pension or “defined benefit” plan. I still hold out hope that Social Security will be saved, but some believe it will disappear. Even if it doesn’t, chances are future generations will get less, and won’t qualify until they’r older. And this depressing graphic shows that people are unable (or unwilling, or unaware of the need) to save. So there goes the third leg.
This is only a partial list of the unprecedented financial problems facing people today. My point, though, isn’t to give up hope or abandon attempts to have personal responsibility. If anything, it’s a call to work even harder to hold onto your smaller earnings and maximize their value.
In my opinion, major reforms are needed to curb predatory lending, make education more affordable, and put income inequality somewhat back in balance, and financial literacy education needs to be much more common. But until then (and it’s going to be a hard struggle if it happens at all), getting mired in frustration or self-pity at the injustice of it won’t help anything — it’ll only make things worse.
Lots of people do still have a fighting chance — but not if they give up the fight. That’s why I’m determined to keep talking about personal finance and help as many people as I can in my small sphere of influence.