You Were Probably Terrible With Money

Many Americans find themselves in a tough financial situation, with credit card debt reaching an all-time high. In fact, two in five Americans feel embarrassed about their credit card debt. It’s clear that there is a growing economic uncertainty, and it’s important to understand how to deal with debt.

The Reality of American Finances

A majority of Americans cannot afford a $1,000 expense without going into debt. Surprisingly, even one-third of people earning $250,000 a year or more live paycheck to paycheck. This raises some important questions: Is it good for the small minority who can keep their spending in check? Can we afford for everybody to be financially responsible?

The Cost of Nonessentials

It’s shocking to learn that Americans are spending almost $188,000 a year on nonessential items. A recent survey reveals that baby boomers are unprepared for retirement, with less than half of what they’ll need in savings. Another survey from Edward Jones indicates that more Americans than ever are on the verge of a financial disaster. But here’s the thing: if everyone were financially responsible, who would be left to spend money on consumer junk, overpriced meals, luxury items, and other nonessential purchases? These purchases may seem frivolous, but they support jobs and contribute to the economy.

The Financial Struggles of the Average American

The average American is not in a comfortable financial position right now. This is a global issue, as money saved during the pandemic has disappeared and credit card debt has taken its place. However, it’s important to recognize that financial irresponsibility and financial fragility are not mutually exclusive. Many Americans are financially responsible, but they struggle to save up for an emergency fund and other necessities that define financial responsibility.

The Challenges of Financial Responsibility

If you aspire to be financially responsible or admire someone who is, there are a few key things you’ll need:

1. An emergency fund
2. Retirement savings
3. A car paid for in cash
4. A house with a 20% down payment by the age of 30

These are all expensive milestones that many people simply cannot afford. While it’s easy to judge those in financial distress, the reality is that even the most frugal Americans struggle to save for emergencies, let alone accomplish all the necessary steps for financial responsibility.

The Impact of the Pandemic

The pandemic led to some unexpected savings for many individuals, thanks to government stimulus payments, paused student loans, and limited spending opportunities. A 2021 survey by GoBankRates revealed that 44% of Americans were saving for an emergency fund, 19% for retirement, and 13% for a home. Unfortunately, a follow-up report by Bloomberg and data from the Federal Reserve showed that most of this money has now been depleted. Only the top 20% of Americans still have excess savings, leaving the rest in a difficult financial position.

The Temptation to Take Financial Risks

With disheartening figures like these, many Americans are losing faith in slow and steady financial responsibility. Instead, they are turning to get-rich-quick schemes, lotteries, and risky investments. While these options often have low success rates, they offer a glimmer of hope for those who feel they have no chance at success through traditional means.

The True Cost of Being Poor

Poverty comes with its own set of challenges that make it even harder to be financially responsible. Poorer areas often lack big stores, forcing residents to travel long distances or rely on convenience stores that charge higher prices. This is just one example of how poverty perpetuates itself. However, there are also individuals who have the means to be financially responsible but make poor decisions. Dave Ramsey, a financial guru, wouldn’t have anyone to yell at on his show if everyone made sound financial choices.

The Balance of Financial Responsibility

While it may seem tempting to have an advantage over others, there are three reasons why it’s in everyone’s best interest for people to be more financially responsible:

1. Better for Everyone

The rise of subscription services and the decline of upfront purchases indicate that people no longer have the means or discipline to save for one-time expenses. This has led to a recurring revenue model where people pay monthly fees for various services. While this model has its benefits, it limits the options for upfront purchases and may not be the most financially advantageous for consumers.

2. Environmental Impact

Reckless spending often leads to overconsumption, resulting in an environmental cost. The average American uses more than their body weight in consumable products daily. By encouraging more responsible spending habits, we can reduce consumption and minimize our environmental impact. This benefits everyone, regardless of their personal concern for the environment.

3. Long-Term Benefits

Financial responsibility benefits everyone in the long run. Companies that rely on reckless spending may thrive in the short term, but those that offer long-term investments and essentials like groceries and healthcare will continue to succeed. Moreover, if more people are financially secure, programs like Social Security will have more resources to support those in need.

The Balance of Financial Responsibility and Investing

While it may seem advantageous to have fewer financially responsible individuals, it can also make it harder for you to achieve your own financial goals. Increased demand in the stock market, for example, drives up prices, making it more expensive for consistent investors. Legendary investor Warren Buffett even dislikes when his stock purchases drive up prices, as it reduces his ability to purchase more shares in the future. The same principle applies to other financially responsible purchases, such as buying a house.

Other Related Posts:

• The Science of Self-Discipline
• The Psychology of Money: Understanding Personal Finance
• The Magic of Thinking Big by David Schwart

The Future of Financial Responsibility

Ultimately, striking a balance is essential. While it may seem appealing to have an advantage over others, a society where everyone is financially responsible is more sustainable and beneficial for all. It’s crucial to educate ourselves on how money works and encourage responsible spending habits without disregarding the importance of investing and long-term financial planning.