OT: Pretty sobering story about Americans' saving habits

pk500 · Post by **pk500** » Wed Mar 08, 2006 10:40 am

http://www.cnn.com/2006/US/02/15/planni ... topstories

Now I don't feel like such a miser for socking away coin like a chipmunk storing nuts for the winter and having zero debt other than a mortgage.

Combine this with the impending bankruptcy of Social Security, and there might be a lot of people f*cked in the next 20 years. Scary stuff, unless the market climbs steadily and people who made wise investments can live off the interest.

Take care,
PK

Dave · Post by **Dave** » Wed Mar 08, 2006 10:48 am

It is very scary. As my wife and I struggle to stockpile as much cash as I would like in anticipation of having a kid in the next 12 to 18 months, I realize that we are better off than most. We have practically no credit card debt and haven't taken out any home equity credit. Just wish either one of us had a long-lasting car exiting college, we owe way too much on two cars.

The sad part is that many people's only "savings account" these days is their home equity. With rising interest rates and, at least up here, a glut of homes on the market, that boom is going away sooner than many would hope.

Now I understand why some are advicating the purchase of gold...

drbaseball · Post by **drbaseball** » Wed Mar 08, 2006 11:50 am

How can it be a habit if nobody is doing it?

Yes, this is sobering information. Most of us, I fear, have bought into the idea that it is "American" to shop. Think back to the days after 9/11, going out and spending was touted as a patriotic act.

The bottom line is that we are a consumer oriented society dependent on debt to finance our next want. Most people have rationalized that they can't possibly be poor when they have all this "stuff" that requires a $600 per month car payment on the SUV that brought the "stuff" home, a $200 monthly gas bill to fuel the SUV, and $50 a month for a storage unit to keep all the "stuff."

I've been working on changing my own mentality this year. Cash on hand is better than "stuff." So far so good as we now actually have a little cash stowed away. And yet, I will be at EB this afternoon to pickup Burnout for the 360.

Brando70 · Post by **Brando70** » Wed Mar 08, 2006 11:57 am

Mrs. Brando and I have definitely straightened out our finances in the last five years. We had some combination of good fortune and wise choices to get rid of our credit card debt and car payments. Even when she stopped working to go to grad school for two years, we were able to do so without taking on any long-term debt.

One thing I am amazed at is people who do not take advantage of their companies' 401ks. I put enough in to get the full match from my company, which is like getting free money for saving. On top of that, my company also offers a stock savings plan, where you can save money to purchase stock. That's been very beneficial for us and serves as kind of an intermediate savings account.

The really scary part beyond the savings issue is how much our economy relies on credit for growth.

James_E · Post by **James_E** » Wed Mar 08, 2006 12:19 pm

When I lived in California, I was amazed at the amount of purchases people made and just threw it on their home equity. 3rd cars, boats, ATVs etc, big TVs.. just throw it onto the mortgage. I guess the justification is that mortgage interest is deductible in the USA?

One couple we knew, having just finally paid off their cars after 3 years of car loan payments, decided that "now that the loans are paid off, let's sell these and upgrade and just put the debt on the mortgage". So they sold these cars they had bought for about 30K new, got around 20K for them. Then... in their minds... 30K is around what they are willing to borrow per car, so 30K + the 20K they just got from the sale is 50K. So they both by brand new 50K vehicles! Adding 60K total to their mortgage! I was blown away, since in my world, if you outright OWN a car that is only 3 years old, you redirect those monthly payments to savings or mortgage or something, and then you drive that car until the maintenance costs get too high.

Dave · Post by **Dave** » Wed Mar 08, 2006 12:27 pm

drbaseball wrote:Yes, this is sobering information. Most of us, I fear, have bought into the idea that it is "American" to shop. Think back to the days after 9/11, going out and spending was touted as a patriotic act.

Great point, I didn't even think of that. Some of the statistics regarding consumer spending on the percentage of it that makes up GDP (I think) are very alarming.

My wife and I, who own two 4 cylinder midsize sedans, were talking the other day about the big SUVs and how so many people can afford them. We don't rake in the cash or anything, but I just don't understand how so many people can spend $40K+ for those things...and then afford gas.

James, if deducting mortgage interest is their justification...wow. I was unimpressed by the effects of my first year of being able to do that. Then again, in California, the homes are much more than here.

Houses are seen as an unfallible source of revenue right now, just like the dot.com stocks were in the late 90s. Unfortunately for millions of Americans, it just can't keep up the current pace. The days of sub-4% mortgages are gone.

pk500 · Post by **pk500** » Wed Mar 08, 2006 12:30 pm

James_E wrote:I was blown away, since in my world, if you outright OWN a car that is only 3 years old, you redirect those monthly payments to savings or mortgage or something, and then you drive that car until the maintenance costs get too high.

James:

You and I must be neighbors in the same world. I always buy low-mileage, 1-year-old cars, as new cars depreciate 20 percent the second they leave the lot with a buyer.

And we always pay off the car well ahead of the terms of the loan. That's money in our pocket, not in the bank's.

Brando's point about the 401K is very astute, too. Anyone who doesn't participate in their company's 401K up to or beyond the company match is a moron. You're giving away money.

Take care,
PK

bdunn13 · Post by **bdunn13** » Wed Mar 08, 2006 12:46 pm

"When I lived in California, I was amazed at the amount of purchases people made and just threw it on their home equity. 3rd cars, boats, ATVs etc, big TVs.. just throw it onto the mortgage. I guess the justification is that mortgage interest is deductible in the USA?"

And those dumbasses will be paying for that car, boat ect for the entire life of their home loan.

For those that don't know - which is prob most of you... I got engaged Feb 15 after dating the same girl for 6 years.

When we first started dating I asked her if she would rather have a nice wedding or a nice house.. she said a nice wedding. WRONG ANSWER!

Over a year ago she was talking about one of your friends that just got married and how much money they spent on the wedding, honeymoon ect. She then said to me, THEY DON'T EVEN HAVE A HOUSE!

Its funny how some of us grow up when it comes to money and others don't. Of course I already have a nice house ect.... and like PK, thats my only debt. My goal is to pay that off in 24 months.

Its amazing too how much stress is removed from you if you live below your means rather than at or above. I have been out of work for prob around 5 months in the last couple of years and not once did I have to worry about where my house payment was going to come from.

WillHunting · Post by **WillHunting** » Wed Mar 08, 2006 2:01 pm

bdunn13 wrote:"Over a year ago she was talking about one of your friends that just got married and how much money they spent on the wedding, honeymoon ect. She then said to me, THEY DON'T EVEN HAVE A HOUSE!

Its funny how some of us grow up when it comes to money and others don't. Of course I already have a nice house ect.... and like PK, thats my only debt. My goal is to pay that off in 24 months.

Its amazing too how much stress is removed from you if you live below your means rather than at or above. I have been out of work for prob around 5 months in the last couple of years and not once did I have to worry about where my house payment was going to come from.

Our friends are getting married this May, they are spending ALL of their savings on the big wedding because she MUST have it. Hehe, I asked her about the house, 2 years ago, she said she wanted to buy a single house (here in NYC and the 5 boroughs, you have to be a millionaire to buy that now). I didn't have the heart to tell her with her and her fiancee's income COMBINED won't be able to purchase a condo, nevermind a single house.

Anyway, the plan changed for her now, her soon to be husband will move in with her with her parents. They do have a floor all to themselves, but they will never move out as far as I am concerned. They are big spenders, they like to buy nice stuff all the time (like a laptop here, an iPod here, nice clothes etc). I have nothing against that, but when you are making $15/hour, I don't think you really can save and do all that.

Thank goodness my wife is a very frugal person. Actually, she keeps me in check since I love to buy games (really my only $$ vice). She told me to sell off my videogames collection so we can buy a HDTV, which I did. We started a mutual fund that automatically deducts $200/month from our account. We don't see the money, we aren't going to spend it!

So far, so good!

wco81 · Post by **wco81** » Wed Mar 08, 2006 2:13 pm

Living like misers is un-American.

Remember after 9/11, Bush said we had to have business as usual, which meant continue to go shopping.

At least 2/3 of our economy is based on consumer spending. That is why we're more prosperous than all other developed countries, especially Europe where unemployment is high and GDP growth is low.

Let the Chinese save and fund our deficit spending. Where else are they going to put their savings?

If the govt. can borrow and spend, why deny the people their cash advances?

Kazuya · Post by **Kazuya** » Wed Mar 08, 2006 2:25 pm

WillHunting wrote:Anyway, the plan changed for her now, her soon to be husband will move in with her with her parents.

Screw the financial problems... he's got mental problems of far greater priority!

Feanor · Post by **Feanor** » Wed Mar 08, 2006 2:42 pm

wco81 wrote: At least 2/3 of our economy is based on consumer spending. That is why we're more prosperous than all other developed countries, especially Europe where unemployment is high and GDP growth is low.

This is not true. A country's posperity is based on its productivity and to a much lesser extent its natural resources, not its consumer spending.

10spro · Post by **10spro** » Wed Mar 08, 2006 2:52 pm

The way I am spending on games lately, I may go downhill soon.

Leebo33 · Post by **Leebo33** » Wed Mar 08, 2006 3:19 pm

Brando70 wrote:On top of that, my company also offers a stock savings plan, where you can save money to purchase stock. That's been very beneficial for us and serves as kind of an intermediate savings account.

Is it company stock only? If so, that scares me a bit.

I would also encourage everyone to take advantage of as much free education and training from your employers as possible. If you can get an MBA and your employer will pay for it then you should do it! I'm working towards another certification and my employer is paying for all the study materials and for the test after I pass. I don't *have* to get the certification, but it could eventually help me and it opens up tons of more opportunities for me.

WillHunting · Post by **WillHunting** » Wed Mar 08, 2006 3:24 pm

Kazuya wrote:
WillHunting wrote:Anyway, the plan changed for her now, her soon to be husband will move in with her with her parents.
Screw the financial problems... he's got mental problems of far greater priority!

Get this.

Her parents have a 3 floor house, 1st floor is storage, they will be moving into 2nd floor, parents and 40-year-old virgin brother are living in 3rd floor.

The fiancee has a rule, she is not allowed to see her parents during the week. LOL, how the hell do you a) make a rule like that when you are living under your inlaw's house and b) even enforce it?

LOL LOL LOL.

wco81 · Post by **wco81** » Wed Mar 08, 2006 3:41 pm

That's funny but it's kind of a sad reflection of the economy.

More and more adults are having to move back home, at least temporarily.

And the usual measures about each generation earning more than their parents' generation are becoming more and more rare.

Outsource the good jobs but they still want Americans to buy their goods.

bdunn13 · Post by **bdunn13** » Wed Mar 08, 2006 3:50 pm

Outsource the good jobs but they still want Americans to buy their goods.

What good jobs are outsourced? I have no clue.

I am in IT, and yeah alot of tech support phone jobs are outsourced. However, these are low paying for the most part and any educated IT person would not touch these jobs with a 10 foot pole.

I think the problem is the H1-Bs. Letting foreigners in to take jobs at home. These lower everyone's salary. Not only that, most of the money is sent over seas to their family and taken out of our economy.

F308GTB · Post by **F308GTB** » Wed Mar 08, 2006 3:51 pm

pk500 wrote:
James_E wrote: You and I must be neighbors in the same world. I always buy low-mileage, 1-year-old cars, as new cars depreciate 20 percent the second they leave the lot with a buyer.

And we always pay off the car well ahead of the terms of the loan. That's money in our pocket, not in the bank's.

Still loads of depreciation in thos 1-year old cars. I prefer to stick with 20+ year old Italian classics that essentially allow you to "borrow" the car or 6+ year old German sports coupes that have hit about 70-80% of depreciated value. Several year old sports cars are the best car investments if they stay mechanically sound. You could buy a mid-late 90s Viper, drive it a few years, and sell for what you paid. Only cost is maintenance and probably a little higher insurance.

Can't wait until we sell our other house. Paid it off in 10 years and am sitting in a more expensive and larger (dang wife) one.

Two wonderful days for me - the day I paid off all my credit card debt (helped fund my living expenses through grad school) and our first mortgage.

Brando70 · Post by **Brando70** » Wed Mar 08, 2006 3:54 pm

Leebo33 wrote:
Brando70 wrote:On top of that, my company also offers a stock savings plan, where you can save money to purchase stock. That's been very beneficial for us and serves as kind of an intermediate savings account.
Is it company stock only? If so, that scares me a bit.

I should say that it's more of a cross between a retirement account and savings account. Unlike a 401k, I can access that money without penalty if I need it. I know there's always risk with this but I don't have enough in there that I would be ruined if something terrible happened.

And let's just say it's making more money than my 360

I am all for buying stuff. I like buying stuff. Money is meant to be spent. It's living beyond your means that is wrong, and too many Americans are doing that. And you have to plan for the future in addition to living in the present.

Leebo33 · Post by **Leebo33** » Wed Mar 08, 2006 3:55 pm

bdunn13 wrote:What good jobs are outsourced? I have no clue.

The company I work for outsources almost all of its in house programming to India. I have no clue whether those are good jobs or not, but they aren't just phone support jobs.

Our public accounting firm outsources a lot of data analysis work overseas.

bdunn13 · Post by **bdunn13** » Wed Mar 08, 2006 3:56 pm

Can't wait until we sell our other house. Paid it off in 10 years and am sitting in a more expensive and larger (dang wife) one.

Two wonderful days for me - the day I paid off all my credit card debt (helped fund my living expenses through grad school) and our first mortgage.

Grats man.

Leebo33 · Post by **Leebo33** » Wed Mar 08, 2006 4:01 pm

Brando70 wrote:I should say that it's more of a cross between a retirement account and savings account. Unlike a 401k, I can access that money without penalty if I need it. I know there's always risk with this but I don't have enough in there that I would be ruined if something terrible happened.

Not to get too far OT, but I was just wondering if the only thing you are allowed to invest in is your own company's stock. If so, do they sell it to you at a discount or without fees? I've just seen too many people lose nice sized investments in their own company stock. If you're not saving money by investing in your own company, you could invest in something similar but a little more diverse with the money automatically taken each month from your checking account instead of your paycheck. We do that through Fidelity for a mutual fund and also for some bond funds.

Dave · Post by **Dave** » Wed Mar 08, 2006 4:16 pm

F308GTB wrote:Two wonderful days for me - the day I paid off all my credit card debt (helped fund my living expenses through grad school) and our first mortgage.

Paying off my college credit cards (most of which was from books and car repairs) was a great day. I felt like a new man and have never gotten anywhere close to that level again.

Isn't the average CC debt about $6,000 now?

I'm not holding my breath to pay off a mortgage any time soon...

And my company's 401K match is absolutely pathetic.

AcemanPR · Post by **AcemanPR** » Wed Mar 08, 2006 4:26 pm

It's a scary thought seeing how few in this country do save for the future. I have a good number of friends that I know hardly have anything saved up, and they are in their mid-30s. What are they going to do when they retire?

When I was in college, it was my goal to be financially sound by the time I was 50. When I turn 50, I don't want to worry about money. No way will I stop working then, but at that time, I was to not have the stress about what I'm going to do when it comes to money.

For the last 13 years, I've been socking money away. My savings plan starting with a whole $20 a week. But back then when I was putting myself through college, paying rent for an apartment, as well as a car payment, $20 was a big deal. As time went on, $20 a week turned to $50, then $75, and now, my wife and I put around $1500 away a month. Last year, we physically saw our investments grow into 6 figures. My financial advisor says that if we continue to save and invest like we have been, we'll have over $3 million by the time we hit age 65 (another 30 years away).

I'm like pk, super stingy when it comes to money. Gaming is really the only thing I splurge on. I used to play quite a bit of golf, but that has gotten more expensive and takes too much time now. Instead, I put the money I would have spent on greens fees towards my kids athletic activities. I've been pro-active in coaching soccer, basketball, and soon baseball.

While we have friends that will go one one or two cruises a year, Disney every year, buy a new car every other year, my wife and I opt to put money away. When we turn 50, we'll get to do some travelling while some of our friends are stressing over finances.

As far as vehicles, I do buy new ones. But I also buy them with the intent that I'll be keeping it for a minimum of 8 years. In 1998, I bought a Dodge Intrepid. In 2004, we bought a new Honda Odyssey. Even though my car is 8 years old this year, it still runs just fine and I really like it. So I'm going to hold onto it for at least 2 more years. Come 2008, I'll get a new car regardless, as I would like to have at least one vehicle that is less than 4 years. But the Mrs. won't get another new vehicle until 2012.

If you are young, I highly advise you to start saving now. Even if it is $10 a week, you develop a discipline of saving money. Whenever you get a chance, add to that amount. Remember, this is money that you are putting away toward retirement, money you can't touch until you are 60 years old.

pk500 · Post by **pk500** » Wed Mar 08, 2006 4:49 pm

F308GTB wrote:Still loads of depreciation in thos 1-year old cars. I prefer to stick with 20+ year old Italian classics that essentially allow you to "borrow" the car or 6+ year old German sports coupes that have hit about 70-80% of depreciated value. Several year old sports cars are the best car investments if they stay mechanically sound. You could buy a mid-late 90s Viper, drive it a few years, and sell for what you paid. Only cost is maintenance and probably a little higher insurance.

And how do you put three kids and their gear into those cars?

Take care,
PK