JUST PLAIN TALK: Americans don't waste as much as some think
Like many Americans, I use Twitter, sometimes for current events but also for sharp wit and comedy. On a serious note, I follow financial writer Jonathan Clements on Twitter, @ClementsMoney. Since I despise reading on my phone, I forward his tweets to my inbox. Reading on a computer screen pales compared to a newspaper or magazine, but it’s the 21st century.
Clements recently challenged conventional financial “wisdom” by sharing Dennis Freidman’s (@DMFrie) blog post, “Blame Game.” Financial gurus would lead you to believe Americans don’t save enough due to their frivolous spending habits. Suze Orman equates gourmet coffee with “peeing a million dollars down the drain.” Check your math, girlfriend. It’s not just her. A cornucopia of articles blame Americans poor money management for their financial woes. Not getting as much attention, but it should, is the fact, according to Pew Research Center statistics, that the purchasing power of the average American has been stagnant since I graduated in 1978 from the University of Georgia, aka Harvard of the South.
When comparing essential and discretionary spending, the Bureau of Labor Statistics (BLS) further undermines the profligate spending argument. According to 2017 data, the average American household spends $60,060 annually. The two highest costs are essential, housing and transportation, 33% and 16%, respectively. Healthcare expenses, no surprise, run, on average, 8%. Almost 60% of income goes to necessary living expenses.
Let’s look at the wastrel spending usual suspects: clothing, entertainment, and restaurant spending. I like eating at home, my wife is a good cook, but working families struggle when no one is home preparing meals. Nonetheless, the average American household spends less than $300 monthly eating out, 6% total. We all have to have clothes, but Americans don’t spend extravagantly on clothing either, 3% annually or around $150 per month. Also, per BLS numbers, Americans don’t throw their money away having fun either. The average entertainment bill is just over $3,000 annually or 5% of total spending. Add it up. These three discretionary items total less than a quarter of housing, transportation, and healthcare costs. College costs have exploded over the 40 years, too.
Some pundits blame Americans’ poor financial decisions on financial illiteracy. A social media meme says we should replace high school algebra with personal finance courses. When I have time and interest, it’s a lot of fun to mention how I regularly use algebra and statistics. Retirement planning and investment analysis require both. Taking a high school course in home economics doesn’t make you Betty Crocker, nor does a year in a welding class make you a pipefitter. Blaming people for their lack of financial literacy is akin to blaming them for foolish spending.
Like yoga, personal finance can always be improved, but many Americans fight economic headwinds beyond their control.
You can’t always get what you want but Buz Livingston, CFP can help you figure out what you need. For specific advice, visit livingstonfinancial.net or drop by 2050 West County Highway 30A, M1 Suite 230.