There's a huge difference between being first world poor, and third world poor.
Just my experience, but my first world poor friends, without exception are all bad with money. They have little understanding of how money actually works, have terrible spending habits, are incredibly risk averse, and carry a "money is evil" mindset.
If it's possible for you to live within your means (edit: putting aside illness, addictions, felonies etc), you can build wealth at a good rate in the first world. You may never be a multi-millionaire, but you can be financially secure and stable.
>my first world poor friends...are all bad with money
This is a well documented phenomenon.[0][1] The state of being in poverty has a significant effect on your cognitive processes evaluating risk and reward and future planning. For people who grew up in poverty, those programmed biases can be extremely challenging to overcome and limit their upward mobility. There's also the aphorism that it's "expensive to be poor." The boots metaphor and all that.
As to building wealth at a good rate, doing that from a state of relative stability vs a state of relative poverty are two entirely different scopes. "Escaping poverty requires almost 20 years with nothing going wrong." When 5 years of savings can be wiped out by a car repair that means you can't get to your job, you can lose 5 years of progress in one bad event.[2] The problem with that statement is whether it "is possible to live within your means." It can be exceptionally challenging and complicated to live within your means while impoverished but still move upwards and respond to emergencies and disasters. And it's doubly much to ask that kind of complex planning from someone affected by the deleterious cognitive effects of poverty documented above.
That's interesting because its also well documented that "Poverty decreases IQ" studies are contentious and not well replicated.
> Mani et al. (Research Articles, 30 August, p. 976) presented laboratory experiments that aimed to show that poverty-related worries impede cognitive functioning. A reanalysis without dichotomization of income fails to corroborate their findings and highlights spurious interactions between income and experimental manipulation due to ceiling effects caused by short and easy tests. This suggests that effects of financial worries are not limited to the poor.
One big problem is that we in general do not teach good money management in schools. Impoverished kids could at least be exposed to the principles of sound financial practices from K-12. What they actually get is maybe a few weeks of "personal finance" as a unit in a High School social studies or economics class. Too little, and too late.
All kinds of ways to do this. Younger kids could be shown how regular investment compounds over time using games that pay out the reward at the end of the school year. Older kids can do mock investments in mutual funds, etc.
I feel like I fall in that camp. I received no formal money training, and frankly saved terribly when I was younger. However, I don't believe education was the problem, I believe maturity was.
I still don't know what I'm doing, but I've got a nice nest egg, I seek knowledge on how best to handle my excess money, and my wife and I are executing her higher interest school loans.
I really don't feel I have that much more knowledge than I did. I simply have the will to plan for my future life. In my early 20s I just didn't care (for various reasons).
Kids learn all sorts of things that they ignore. As a race, we seem to be really good at shooting ourselves in the foot.
Related to education though, I feel that these patterns of ignoring what is good for you is what is really at fault here. This has wide reaching implications in my mind, and is the cause of anti-intellectualism in America that is quite concerning. We just don't.. care, as a society. Until we do, I don't foresee education on finances drastically improving quality of life.
Note that I of course will always back education, I'm definitely not advocating against it. I just see this as part of a really large problem, and I've got no idea how to solve it.
I've said this a lot, and I've heard others say it too. I've recently been talking to my sister (a 1st grade teacher) about it and the conclusion we've come to is that even if there was a class it would do little good because of how little high school education sinks in. Most students just don't care enough to learn a boring life skill like money management.
I think your idea of having younger kids start learning this early (before its "uncool") is key. My sister says 1st grade is probably a little too early. I think maybe 3rd-6th might be right to start introducing the concepts.
Anything would be better than what we're doing now.
> If it's possible for you to live within your means, you can build wealth at a good rate in the first world.
There are a significant number of exceptions to this idea. If you dig a deep enough hole (drug problems, felonies, etc) it's hard to just keep a roof over your head.
And sure, "it's their fault", but for a lot of people the die was cast when they were very young.
(Update: I should clarify that this may be a U.S. problem vs a first world problem. The safety net here is abysmal, speaking as someone who has spent way too much time and money helping a friend manage.)
Apologies, I wasn't clear. The "If it's possible for you to live within your means" qualifier was for these sorts of things.
Depending on their severity, addictions, felonies, learning difficulties and health problems (and many other things) could all be legitimate limiters on wealth building.
Are you sure you mean upper six figures, and not five? With high six figures your one month's salary would dwarf your savings, which sounds quite implausible.
I think the GP probably meant upper end of the [100k, 200k) range. If they truly meant upper end of the [100k, 1M) range and they're still in the same state of having a mere combined 11k saved...they're doing something horribly wrong with their finances and should take a step back and reevaluate their personal finances.
I'm in the [100k, 200k) range, and I've had to reevaluate my finances. I used to live pretty comfortably on less than half my income. I had no credit card debt, my $50k car was paid off. Student loans were paid off a decade ago. Then, I got married and now have 2 step children. Between moving into a larger place to accommodate the new family and all the costs associated with getting married, moving & furnishing a larger place, I'm just now about to start to get our heads above water. I had to take money out of savings before we could get outflow to be less than inflow.
Replying here, because I had no time to reply here earlier due to meetings. Anyway yes between 150 - 200k range.
My prior comment before removed was 5k savings, 11k 401k. I had more, but life events. For me, it's a variety of things. Largely summed up as I bought a house at 25. Had health issues that were in remission, then came back. And have been trying to get above water since.
I know a number of software engineers, who are in it just to pay the bills. As the pay increases so do the responiblities you hold.
>> If it's possible for you to live within your means, you can build wealth at a good rate in the first world.
That's true if you're well insured, never become disabled, can find & maintain regular employment that pays a living wage, have access to a reasonable cost of living, and are savvy enough to figure all that out.
Aren't about half of US personal bankruptcies (or were, before Obamacare) because of medical debt? It might be just me, but I was under the impression that having negative net worth in the US has a lot to do with which cards you're dealt in life.
The correct stat is "50% of all bankruptcies include medical debt". That doesn't mean the medical debt caused the bankruptcy. It could be a $10 co-pay they didn't pay, but the $50,000 in credit card debt that sank them.
Keep in mind, health problems are actually a major cause of bankruptcy in countries with universal coverage like Canada as well. It's nice when your healthcare is paid for, but if you can't work, bankruptcy is a major problem as well.
But even then, labeling them as slackers strikes me as callous to some degree.
Where I'm from, and in the various countries I've lived in (including the US), I've met plenty of people who for one reason or another couldn't - bar sheer luck - get a job that pays anything decent. Be it lack of connections, no idea how to build those connections, lack of ambition, lack of education, whatever. There were good reasons, and probably not so great ones, but in practice I seldom got the feel it was about good spending habits or slacking.
If anything, and anecdotally, I probably met more people with terrible saving habits when interacting with segments of the population that were rather well off to begin with - that is, they had excess cash or the potential for it. The "worst" example I can think of was a patent attorney who charged $500/hour, worked a single client per month to make ends meet, and enjoyed life the rest of the time. $10/hour or $2/hour people just don't do that insofar as I've interacted with them - and I did quite a bit while traveling. The "worst" I've encountered on their end were people deciding to work less hours after they got a raise because, you know, they only need so much to make ends meet and were happy with earning just that; and no assets/low income folks getting subprime loans just before the housing crisis.
Admittedly it's only a small unrepresentative sample at the end of the day, but I honestly never got the impression the low wage earners I interacted with were slackers or spending like there was no tomorrow. Mostly (if only potentially) mid- to high wage earners were, and they oftentimes had some savings or could earn money in a heartbeat if they really needed to. They're far from the majority of the population.
I agree... assuming no health/personal catastrophes for you or your family, stable employment, and good training in financial planning. Those are some big assumptions.
Not really, the vast majority of those living in first world nations don't have catastrophic events that ruin them financially.
Also, you don't need 'good training in financial planning', you just need the same amount of common sense my grandparents had - spend less than you earn, and set something aside for a rainy day.
I was laid off in 2008, couldn't get work, had to move to a different state, cashed out my 401k and sold my house 80 grand under what i paid for it and couldn't buy a new house for several years because of law.
Then my hands started hurting and I found out i had vikings disease... i type for a living. first process cost about a grand, insurance doesn't cover much of it.
Now both my hands are worse off and i'm looking at another surgery which will cost more that insurance won't cover.
My wife got into a car accident and we need two cars since i work and she home schools.
My parents are assholes and don't give a shit about myself or my family and my wifes immediate family is all dead. We inherited nothing. Raised 2 kids by ourselves, no grandma/no grandpa, no aunts, no uncles.
The world is trying hard to really fuck people over, and i've managed to stay on top of it.
Now my kids need jaw surgery and another needs teeth work - dental coverage is a joke. The jaw surgery is going to cost 5 grand and the others dental is 1700.
My property taxes are going up year over year. Maintenance costs are going up year over year, salaries have gone up but not as quickly and the tax relief was a joke.
spend less than you earn sounds esier on paper than reality of living.
we downsized our homes, we don't have cable tv, i use a company phone for cell phone, i'm always having to reduce my 401k contributions and even when i try and rollover my prior 401ks that shit is perpetually frozen and no matter where i turn or what I do it seems something is trying to stop me or block me.
All of us have those kinds of problems. I've been laid off, paid a tremendous amount of cash for dental work (growing up with poor dental health sucks), and have no meaningful help from relatives (quite the opposite, they're a regular financial drain because they need constant help.)
I remember being so poor growing up that I used my first paycheck to buy a loaf of bread and a tube of cheap sausage and it was the first time having anything approaching a real meal in a few days.
Costs happen. Kids get sick/injured, cars get damaged or break down, taxes only ever increase.
I save aggressively, consistently live below my means (not miserly, but frugally), do all of the home maintenance and car work I can do safely and legally, and cook almost all of my meals at home from relatively basic ingredients.
And you know what? I have a pretty damned good life. I had to move across the US to a place with a lower cost of living and better job opportunities. My wife had to switch careers. I had to work several years at crappy jobs.
When you buy a thing, evaluate it's lifetime cost. When something breaks, fix it quickly and correctly. Avoid unnecessary costs. Prefer mending to replacing. Save for the unexpected, and then save some more. When dealing in dangerous waters (legal troubles, real estate, complex investments or financials), hire a skilled expert, even if it means lowering your quality of life. Keep enough insurance, and do the work to get multiple quotes or bids for any kind of job.
I don't claim to be poor, but the struggle is real. And like the post above me, my life would be exponentially better if health insurance wasn't terrible.
Our system is designed for people to fail. Even our own president has bragged that another depression would be a good thing since he could buy things up at a discount. (yeah, there is a tweet for everything)
I find it so strange that <100% of Americans are not for everyone having healthcare in a system that doesn't potentially bankrupt a person. It just seems so strange.
America can't afford universal health care - doctors get paid too much. The average doctor's salary here is over 300k USD. The average doctors salary in Europe is almost one-third of that..
Here implying I don’t live here. I really don’t think doctor salaries is the problem with outrageous health car cost. I could be wrong but seems like admin overhead and over prescribing treatment is a big problem from my small point of view.
Edit: also people wanting it and the financials of it being practical are entirely coupled together. My point was I don’t see how someone can not be for the idea of health care for all.
we have a collective paranoia based on several totalitarian governments aroundnthe worls throughout history. this fear influences our attitude toward putting government in charge of many things.
we also have strangely intimate relationships to our doctors. we stick with them even when were not sure theyre doing their best for us. we fear an "anonymous" doctor who doesnt know us personally.
these fears are exploited with imagery like "death panels," where faceless government bureacuracies let people with uneconically feasible conditions die untreated.
to reverse this requires stories of success from Europe told without smugness. many memes are tonedeaf humblebragging about euro healthcare that instantly turn off americans.
Have you ever watched someone try to persuade others to their opinion? Are people perfect evaluators of facts and reason completely impervious to the negative affect of the persuader?
Or is it more common people go along with a emotionally-resonant personality and dismiss their reliance on facts and figures based on intuition?
You can be sure when I buy computer parts, numbers are the bottom line, but what if an ad for, say, an SSD offered a great price and excellent performance. Would you still buy it if next to the price tag, it said that if you did so, you're pathetic?
> "death panels," where faceless government bureacuracies let people with uneconically feasible conditions die untreated.
We prefer the private "Free Market" death panels. (Health Insurance), which effectively do the same thing. But you get a choice in who will deny you cover if you ever go over a limit or could not afford you cover.
> we also have strangely intimate relationships to our doctors. we stick with them even when were not sure theyre doing their best for us. we fear an "anonymous" doctor who doesnt know us personally.
What does that have to do with the issue? Germany has mandatory healthcare insurance, and I'm still free to choose my GP and specialists.
I understand your difficulties and sincerely hope you'll manage to get out of them. Also Im really happy to be in west Europe where we have a real social security. Say what you want, you don't build incentives with health. You just stop and heal people (of your country). Case in point : whoever you are, where I am you will have the expensive surgery / medicine / scanner. For free. Prioritized with your health and benefits, not how much you earn (well that's true to a good approximation)
Homeschool is rather involved, we do hands-on learning so lots of field trips, lots of "Coop classes" with other families, we also do art/music and tutoring and there are park-days for kids to play and so much more.
I live in Austin Texas, you need a second car to survive. Getting wife and 2 kids around town for everything in uber/lyft isn't economical and my wife also runs a not for profit and volunteers with charity and runs events and I have after work activities such as volunteering for first robotics, girl scouts and such.
Likewise, "not having a car" doesn't mean "never leave the house" (source: I don't have a car, leave the house occasionally).
I can appreciate having a car can be useful, but I'd not call it a necessity. Perhaps things are different in the US of A. The perceived poverty threshold is a lot higher. In many countries, if you have clothes, a roof over your head, and can eat regularly, you're good.
>I can appreciate having a car can be useful, but I'd not call it a necessity. Perhaps things are different in the US of A.
American urban planning is heavily car-centric. They talk about "walkable communities", because the opposite is the norm. A large proportion of American towns and suburbs are sprawling, low-density and strictly segregated between residential and commercial developments. Public transport is often meagre or nonexistent. Parts of America are practically uninhabitable without a car. It's probably true to say that Americans are unreasonably attached to driving and averse to walking, but at this stage it's a self-perpetuating cycle.
So if wife needs a car during the day she drives husband to work in the morning and picks him up in the evening, that's what my husband and I do if only one of us works one day, we only have one car. I can't begin imagine owning two cars if only one of us worked! We'd have to have pretty wealthy to even consider that.
If things are that tight, why not send your kids to a public school so your wife can find employment? Even a part-time job would add tens of thousands of dollars to your total annual income and go a long ways towards easing those squeezes you're feeling.
I don't think it matters how exceptional or unlucky the specific situation is. A system that "punishes" bad luck like that is at some level fundamentally broken.
The lack of meaningful systemic mitigation for "bad luck" is what I'm talking about with "punishment". It's why I quoted the word. You're drawing a stricter meaning than I think is apparent in my position, and making a semantic dodge around it.
At the end of the day, someone's life is still wrecked through no fault of their own, and "the system" — which is us — just stands there, all, "Sucks to be you."
Fwiw, I'm all for systems that mitigate bad luck. It's just that... these systems are large, have been in place for a long time, and have immense amounts of inertia. Which is not to say we shouldn't try to change them!
I think we've been agreeing right past one another, then. I'm reminded of the Joe Rogan quote to the effect that "the sooner we can all realize we've been taught how to live life from people operating on the momentum of an ignorant past" (or however it's phrased), the better off we'll all be.
You have had good financial planning habits in your family for two generations. That is in some sense "training" that many first-world poor people don't get.
I think people are using different definitions of poor here. The article references NET WORTH not INCOME e.g. a doctor earning $200k a year but with $200k of medical debt is "poor."
over 50% of households make >$50k a year in the U.S. but many of them have very little net worth...some of them are unlucky, but many of them make decisions that keep them with very little money in their pocket...
Honestly we should be looking at consumption rather than income. Of the ten poorest communities in the US by income half are college towns. Most college students have low incomes but I don't think it's right to consider them poor either given that this is generally a temporary state and they're frequently living better than their age-mates who aren't are working full time instead of attending college and thus have higher incomes.
They're not poor but I think there are few enough people voluntarily consuming less than $12,140 a year when they could live better that I'm comfortable ignoring them in the relevant statistics.
“Of all the preposterous assumptions of humanity over humanity, nothing exceeds most of the criticisms made on the habits of the poor by the well-housed, well-warmed, and well-fed.”
I'm confused what you mean here - isn't a degree of risk aversion good? I feel like "most people" are incredibly not risk averse, in that they recognize that they have little savings to no savings, emergency funds and etc but still behave like they are not at risk.
I however, keep a 4-6mo fully liquid because I'm terrified at the thought of only having 1mo in liquid. Tbh, I'd love to have 12mo, but anything beyond 4-6 and it starts feeling obscene not investing the extra.
You are assuming they are poor because of choice and not because of systemic abject poverty. Yeah its easy to save 60000 dollars a year if you make 200000 p/a but the likelihood of someone in a lower-class robo job saving significant amounts of money is very low.
A book that changed my life, Your Money or Your Life, by Vicky Robin and Joe Dominguez, was recently re-published with some updated info. If you're the reading type, you should pick up a copy at your library. It guides you through making peace with your past, figuring out your real income and spending, tracking your savings/spending every month, thinking about expenses in terms of hours of your life, etc.
If you get an older copy, just don't take the investment advise too seriously—it's pretty out-of-date. Everything else is gold.
A lot of it is self control and that doesn't necessarily mean living with the least amount of money possible. It just means understanding how much you make and how much you can afford to spend.
The first step is to track your incoming / outgoing financials.
Just like programming, in order to fix the problem you need to understand what the problem is and tracking your $ for a few months will show you exactly what's going wrong.
There are plenty of resources available. The personal finance subreddit is a good place to start. If you are looking more for the wealth building side of personal finance I recommend Rich Dad, Poor Dad or Dave Ramsey to start changing your ideas about money.
research purchases extensively, comparisok shop, buy used, learn to sew and solder, cook plant-based food, exercise outdoors, value down time and low cost entertainment like board games, reading, drawing and making music.
But does this also include negative wealth? Especially in the US, it seems to me that many people have a lot of debt – staring from credit card debt to a too expensive car lease (and a new one ever 3 years) to the house they have payments on for ~50 years? This way, it seems to me that a lot of people (especially younger ones) have a wealth of ~-10,000€.
Debt is “bad” when used for depreciating assets (cars, credit cards). Debt is “good” when used as leverage on appreciating assets (real estate) or working assets (tools, business vehicles, servers, or anything else being used to generate cash flow).
If I have an interest only loan on something like a taxi medallions (thanks Planet Money for the example!), I generate cash flow with that asset, and can walk away from the debt at any time through bankruptcy of the owning entity, that’s still positive wealth (cash flow).
The less capital you need to obtain access to greater amounts of cash flow, the better the cash on cash return/investment quality.
But real estate debt is only good if you can afford it and you buy smart. I know a lot of people who bought a house and sold it later for less even after all the payments because they bought it high and sold it low.
Furthermore, if you pay for something very long, you are also going to be paying a lot of interest. You wouldn’t be paying that long if you could afford it and you would be getting a better credit rate if you could afford it.
Unfortunately not everybody is able to invest smartly and thus good debt easily becomes bad debt. It doesn’t help that most people potray reale estates as good debt because they really aren’t that good unless you know what you are doing.
Even if your house ends up being less than you bought it for you still have a house. Assuming you want to live in the same area long term it seems wiser to finish a mortgage and be left with a house that's worth less than you paid for it versus paying rent for the same amount of time and ending up with nothing.
I think you're ignoring the significant carrying costs of a house. My house last year had over $11,000 in carrying costs in just taxes, insurance,and interest. Never minding the upkeep and repairs (which are significant yet difficult to estimate). There's other hidden costs like opportunity cost, the return on investment you'd be getting if you didn't have that money tied up in your house.
I did. It’s extremely rare for real estate to decline in value, and walking away from the property is always an option if it has (or a short sale, which is must less detrimental on your credit).
Even if it were true (and it's not[1]), the topic at hand is a hypothetical case where "your house ends up being less than you bought it" and that's what I was directly replying to. If you lose money on the sale price is (almost certainly) not even close to the amount of money you have to spend just to own the house.
[1] I personally know at least three people who sold houses for less than the bought them 7-10 years later. My parents have owned their house for 25 years and while the dollar value went up it hasn't kept pace with inflation (recently got three appraisals) even though they have cared for it and even added an extra bathroom.
> It’s extremely rare for real estate to decline in value
You and I must have very different ideas of what the word "extremely" means.
> walking away from the property is always an option
That is only true in twelve states. In the other 38, the lender can sue you to recover the difference between the house's value and what you owe even after they foreclose.
The mere fact that you are looking at real estate as an investment rather than as a place to live indicates that you have far more financial resources than a typical person. For a typical person it is not a realistic option to discard their entire social network and move halfway across the country just to get some more favorable mortgage laws.
You don't have to live somewhere with non-recourse mortgages. To get started, you only need 3% down, an FHA mortgage, and a 4-plex that cashflows slightly. You then eventually refi that with something more conventional and move on to your next property.
Real estate is only one investment vehicle where you don't need a large amount of capital to realize substantial cash flows. Whenever possible, seek out leverage opportunities.
You don't get to choose where you are born or grow up. You are effectively suggesting that people move a thousand miles away from every single person that they know just to get more favorable mortgage laws. That is not doable without starting from a position of privilege.
As investment, you don't actually have to live where you are buying. I have a relative 2000 miles away that buys condos in my city as investments. My wife researches them, reports back and they make a buying decision. There's a favorable situation here and they're taking advantage of it. Not by 'privilege'; by smart investing.
If you can afford to buy a house that you aren't even living in, you have far more financial resources than the vast majority of people. You seem to be completely deluded about how much a normal person can afford to put into investments.
The average person probably shouldn't be buying investment properties anyways. Running income producing properties is more of a part time job than anything else. It takes significant effort to find the right property at the right price with the right renovations in order to make a good profit. Unless you're really willing to put in the leg work (and usually the "sweat equity"), you're better off putting your money in index funds or REITs. It takes the right person to make money in real estate.
I've known several people who wanted to "get into real estate" so they bought duplexes and became landlords. All of them lost money or broke even because they went into it without doing their due diligence. My parents ended up just walking away from their "investment" property and declaring bankruptcy, that's how much they lost out. It isn't buy property -> profit like people think.
Leverage cuts both ways - it magnifies both gains and losses.
It depends. On parameters like interest rates and rates of return on other asset classes and rental prices and inflation. There is opportunity cost - in some circumstances paying cheap rent and investing the difference into other investment asset classes might leave you better off in the long run. See the New York Times rent vs buy thing.
I think a lot of people incorrectly view personal residences as investments. They don't produce income and their valuation is tied largely to comps which really translates to other peoples' feelings and purchasing power at that time. Mortgaging a home is arguably a poor use of debt unless you're actually able to put a similar sum to work making a higher return elsewhere.
If you're investing in real estate by purchasing a cash-flowing property like apartments, then you'd be crazy not to use leverage. You can easily calculate your ROI based on property cashflow and projected value based on rent growth. And your ROI is always going to be bigger if you only put up 25% of the value and let the bank pay for the rest as long as you're cashflowing more than the mortgage payments.
Personally don't view this as a necessarily bad thing. Short term losses like this suck but what you learn long term is entirely more valuable than if you did well the first time. Nothing teaches you as well as losing money.
The probably count mortgages and student loans as negative wealth, and they probably count houses as positive wealth, but they probably don't count degrees as positive wealth even though they should.
You have to define "wealth" if you want a worthwhile answer. After all, debt is a component of a person's assets.
If you remember your accounting courses: assets are equal to the sum of all liabilities and equity. Meaning mortgage debt and home equity combine to form your total home assets. A person may have $1m in assets and $900k in liabilities. Or a person could have $200k in assets but $50k in liabilities. Which person is more "wealthy".
I suppose its a matter of opinion because, after all, we haven't defined a goal. Is a low debt to equity ratio desirable? Depends on what you're trying to accomplish. Is high cash flow desirable? As an end state, yes that's desirable but what if that end state requires a large amount of debt to achieve?
Unfortunately the link from the article to the original report seems to be broken.
The standard simple calculation for net worth is assets minus debts, so credit card debt, mortgages, etc. would be negative.
But even though the mortgage is negative, the value of the home would be positive, and the net difference between the value of the home and the debt owed on the mortgage could very well be a positive component of net worth.
I don't know anything about the frequency, but if you refinance you can start the 30 year process over. So if you refi after 20 years and go for the 30 year loan you'd be at 50.
Yeah but, who's happier? That's not easy to answer btw. I've read studies that show evidence for both:
-Money brings you happiness (up to some asymptote most never reach)
-Poor (by western standards) rural tribes or hunter-gatherers are very happy.
I think it's illustrative to compare assets across the world but perhaps a more normalized metric would be overall "happiness", whatever that means (no its not easy to define).
My own western-biased experience tells me it's a bit of both. Money does in fact bring freedom of time which can bring happiness, but I've met some extremely happy people living on peanuts, eating very healthy and living on islands off the coast of Japan.
It would be completely consistent for more money => more happiness for each individual person, but for differences in happiness between people to be dominated by non-monetary factors (personality, relationships, local culture, etc.). The problem is that you probably can't make that hunter-gatherer much richer without completely changing the culture they live in.
Happiness isn't a useful metric by itself. Happiness needs to be stable, stability requires power, and power requires relative wealth. In the long run inequality undermines happiness, even if you've met some happy poor people.
Look at the native American population. They were happy until the weren't: when a culture with greater financial power wanted what they had and they didn't have the power to stop it.
Or look at Somali pirates: happy fisherman. Until foreign powers dump waste in their fishing waters for decades, then they lose their economy and have to arm themselves to defend their waters. No more happy. Because they couldn't fund a proper navy.
The point being -- know the difference between weather and climate.
> If not, I don't see what use that number could be.
There is still value in the comparison. Products like mobile phones are going to have similar prices around the globe. Also, it affects the capability to travel.
With my European salary, I can travel anywhere in the world. Norway is more expensive than Turkey, but I can travel to both.
We had a team member for a secondment that came from a country with lower salaries. Our company had a policy where you pay first and then you get refunded. He needed to get all expenses pre-paid because of his full salary not being enough to pay for the expenses.
If you can buy a house in your country for 2,000 dollars. I can also buy a house in your country at that price. Probably I can buy a few of them once I have my basic needs covered in my own country.
So, there are more interesting data points than purchasing power in dollars. But it is relevant when we talk about wealth distribution.
I think your privilege may be showing. Estimates are that there's around 3.6 billion airline passengers a year. That's not unique or international passengers, that's all passengers. When you factor in that most passengers fly several times a year, and most flights are domestic, that means international travelers are a privileged minority. Employees of international companies usually work for the local branch of said company as well, and are paid relative to local salaries not relative to all the companies salaries.
>Products like mobile phones are going to have similar prices around the globe.
This is a false assumption, and why controlling for purchasing power is important. Even expensive electronics don't have the same base price everywhere and local costs can add a significant amount. The overwhelming majority of consumer purchases cannot take advantage of international travel to countries with lower costs and better exchange rates. Even when they can, duties may apply when trying to bring things back. If it was so easy everyone would do it and the laws would have to be rewritten to prevent it.
>If you can buy a house in your country for 2,000 dollars. I can also buy a house in your country at that price.
This is also a false assumption, many countries have laws limiting foreign ownership and unused real estate, and getting credit for a home purchase can be even harder. The vast majority of homes are the primary residence of the people who own them, having a cheap second home in elsewhere does nothing for them
> Products like mobile phones are going to have similar prices around the globe
On the other hand, consider how much people pay in America for things which are not globally-transportable, such as housing, or services which are ultimately based on the labor rates of the people around them, like child care.
Between locations there can be definite asymmetries in the balance between goods, labor, and rents.
> "Secondment is the assignment of a member of one organisation to another organisation for a temporary period. The employee typically retains their salary and other employment rights from their primary organisation but they work closely within the other organisation to provide training and the sharing of experience."
Another form is “so and so is on secondment to [the new organization]”, as in “She is actually a naval officer, but is on secondment to the Air Force as part of an project to standardize repair procedures.”
Yes, I agree that the number sounds great to me. People forget that 70% of the world's population lives on less than $10/day. When you're making $100k+ at your fancy first world tech job maybe $2300 sounds terrible. But when $2300 is 230 days pay, it's amazing. And that number has got to be really high from a historical standpoint, since historically there was really only royalty and abject poverty.
It really isn't all that awesome, because that isn't very much net worth at all. At a minimum, you'd want everyone's net worth to be at least the average value of a car, I'd think.
70% of the world's population lives on less than $10/day. And that is a significant improvement over most of history. If it's really half of the world that has $2300 that sounds very promising to me. I guess "awesome vs not awesome" really amounts to "compared to what?" Compared to the fantasy in my head of how life could be, it's terrible. Compared to real world history, it sounds pretty good.
Young people tend to have less assets than old people. Graduate from college with the median debt (~30K) and now you have net negative worth for a while. But this does not mean you're poor, and it certainly correlates with much higher net worth when older.
Buy a car, which now has immediately lost value (in general), and you may have negative net worth for some time. But this is not bad, nor is it long term poor.
As such, I don't think wanting everyone's net worth to be the average value of a car is realistic. Maybe averaged over a lifetime, or some such non-time-static metric would be better.
Not really. Obviously money spends differently in different places, but the sum of EVERYTHING that someone owns being less valuable than my computer, cell phone and the cash in my wallet is very bad.
Never mind the idea that there's still an extreme minority of the population in possession of an obscene ratio of the world's wealth is "awesome" in the sense that it "inspires awe that our society has continued to allow this to happen" but that doesn't mean it's good.
But isn't total wealth relative to the economy one lives in? I'm thinking of Steven Pinker and his latest book "Enlightenment Now", where he discusses some staggering stats about world poverty that are really worth considering. Of course things can definitely be much better. But it seems we actually have been making tremendous progress along this line, so the article's negative connotations may be a bit misplaced.
I did a lot of manual excel work in sorting and filtering the Credit Suisse Global Wealth Report after I received it.
An important thing to know here is that this is net wealth, not gross wealth. IF you have a $500,000 house and a $400,000 mortgage and nothing in the bank and no student loans and so on, you have $100,000 in net assets.
This is why 33% of Americans and 90% of Russians have less than $10,000 in assets. Massively, massively in debt, or massively, massively income deficient relative to someone from New Zealand or Switzerland.
This article is confusing to me because it conflates two things I tend to keep separate in my head - the changing income inequality within one country, and the income inequality of the entire world, mixed together.
Within a nation you can measure and track inequality with something like the GINI coefficient, and for nations like the US, inequality has worsened over time.
Within the world, we've seen massive improvements over time (at least that was my impression reading Hans Rosling) and it seems rather inexorable that globalization will make it improve even more over time.
I'm guessing the problem there is like how "privilege can make greater equality feel like oppression" - if the levels continue to normalize over time, then the richer countries will get (relatively) poorer. But if the richer countries have higher inequality, then that burden will be mostly felt by the richer countries' poor.
Yeah the pace of change lately has me mentally filtering out and avoiding any articles / posts / news / documentaries older than about 6 months at this point.
What I’ve learned from many people is that land is a valuable asset to have. Land is naturally scarce with a fixed supply, so it is a decent vehicle for storing wealth.
Would be cool if you could transfer land titles via blockchain, then you don’t need a middleman. If you can provide tiny lots to purchase for people who don’t traditionally invest in land, it could potentially be a great way to help those who are in poverty build a bit of wealth.
Wealth, is wider and more complicated but if we narrow things to "money," there's an accounting tautology to take note of.
You borrow a dollar from the bank. You buy something from me for a dollar. I put it in the bank.
I have a dollar in the bank. You have -1 dollars, a debt to the bank. $0 net dollars between us. $0 average money-wealth. This is what most money is, debt. The average amount of debt-created money.
If you keep borrowing from the bank, buying from me, and I keep putting money in the bank... both sides of our combined balance sheet will keep growing. For every dollar in my account, you will owe another dollar. The average & sum will always be 0.
So.. if we are looking at just the money part of wealth, it never grows in total.
If you borrowed to spend on consumption, then the story ends here. If you borrowed to buy non-money assets, then you still have those durables. For example, say you borrowed $1 to buy a house. I built it for you. I have a $1. You have -$1 and a $1 house.
In reality, it's hard to differentiate between real assets and money assets. What is a security, really? This part gets hard so I'll leave it at that.
The upshot is that a lot of our collective wealth adds up to $0. For every dollar someone somewhere has in the bank, someone else owes a dollar. In the currently prevailing banking/money/governance system, a lot of the debt is owed by governments so they take a big chunk of the negative side. This leaves more room for people to own rather than owe money.
If you subtract each persons share of national debt from your median person, I would expect the number is negative.
The only way you will ever achieve wealth redistribution is with violence. Look at the great leap forward. It will not happen in America, at least I pray not in my lifetime.
We've had great inequality in the U.S. before (beginning of 20th century) and it somehow resolved itself. Perhaps there is a historical lesson in there somewhere.
It was resolved in part thanks to World War II which was a massive all-in undertaking for the US (which it never really backed down from, they've maintained a massive standing force ever since then.) That was a huge redirection of capital that created many jobs while simultaneously removing millions from the work force. That is basically a perfect storm for raising wages across the board, and thus decreasing inequality.
Historically wars and unrest seem to be critical for redistribution of wealth once inequality increased to unsustainable levels. I wonder what will happen now in this era of unprecedented peace.
Social democracy is the least painful solution within the current societal organization. That or mass labor movements. Otherwise unfettered capitalism will simply exacerbate inequality until things reach a tipping point - if billionaires and people that control the media don’t begin to shill for more redistributionist policies in the next couple decades they will have indirectly killed themselves
It's happening in America right now, just not in the way you think. Everytime a company pays their employees so little they need welfare to live, that's redistributing wealth from society to shareholders
It's also been happening for years with social security redistributing wealth from younger workers to older retirees
It also happens whenever we do QE or lowering discount window interest rates - that's wealth distribution from everybody (that happens to disproportionately hurt those with lower earning power) to banks and those privileged enough to obtain government grants, and indirectly, away from everyone saving for retirement to publically traded corporations.
>Everytime a company pays their employees so little they need welfare to live, that's redistributing wealth from society to shareholders
I'm curious what you believe would happen if we could magically remove all welfare programs. Do you believe those employers would be forced to raise wages? Or do you believe the lives of the poor would just be that much worse?
I think everyone would be worse off unless companies are forced to pay. I am pro UBI, I just thought the guy was being crazy by hoping for something to never happen in his lifetime that is happening every day and has been for a while
I don't agree with that conclusion at all. If they didn't subsidize those employees through welfare people would stop working there, either through leaving to other jobs or just dieing. At some point people have to eat and have a place to sleep.
Society is providing a workforce to employers at a wage that is not sustainable without the welfare
>If they didn't subsidize those employees through welfare people would stop working there, either through leaving to other jobs or just dieing.
So then you believe if we eliminate welfare that employers would be forced to raise wages, because employees would be unable or unwilling to work there for their current wages. That is the opposite of what you said before.
I am struggling to understand your train of thought.
I claimed that there is redistributing wealth from society to business owners via welfare for low paid employees. In my understanding of the world the wages that are necessary to sustain the work force are $X and employers are paying $X -$Y. That $Y is the amount covered by welfare and what I am considering to be the wealth redistribution from society to the business owners.
That seems consistent with the idea that if the $Y subsidy is removed, then employers would be forced to raise wages or lose their workforce.
For example: if I have a nice car that my parents cover the lease and they stop covering the lease,I will either have to increase the amount of money I spend on the lease or lose the car. Just because I can respond to the change doesnt mean wealth wasn't being redistributed from my parents to me
Edit: it also appears that we are triggering hn's anti flame war measures as I have to wait some time to reply to you now. This has been a unheated discussion to me, but there will be delays in any responses now
In your first response you seemed to be indicating that the lives of the poor would just be worse if we removed welfare. If that were the case, then welfare is not subsidizing shareholders.
Now you're saying that if welfare is removed employers would be forced to raise wages or go out of business. If that's true, then yes, welfare is subsidizing shareholders. Given that belief, do you support removing welfare programs so that we (society) can stop subsidizing shareholders?
You are making a connection I am not making. If welfare is removed you are assuming that people's lives would not be worse because _eventually_ companies would be forced to raise their wages. In the short, medium, and even long term if the companies we're done headed enough, people's lives would be worse off because they would lack the welfare _and_ employers would not have adapted wages to the new equilibrium.
As to what I support. I would be for a UBI system so that every company would no longer have to worry about supporting their employees basic needs. It would allow for better competition as employees would be in a better negotiating position since no one would need a particular job. It would be still be a wealth transfer but I think the improvements to economy would pay off and it would give every citizen a benefit directly by not making them tied to employment. Road repair from damage from trucks is another situation where it looks like a wealth transfer from society to businesses, but the payoff in terms of the improvements to citizens lives are worth it.
As it stands currently the benefits from this current setup only go to owners of companies with low paid employees and I don't believe that the benefit of lower prices on some goods outweighs the harm that is caused by increasing the inequality between business owners and employees without giving employees a way to improve their lives
>If welfare is removed you are assuming that people's lives would not be worse because _eventually_ companies would be forced to raise their wages. In the short, medium, and even long term if the companies we're done headed enough, people's lives would be worse off because they would lack the welfare _and_ employers would not have adapted wages to the new equilibrium.
This concern could be alleviated by phasing out welfare over time rather than instantaneously removing it. I feel like you dodged the spirit of the question, so I'll ask it again. Ignoring UBI as a possibility, given the world as you understand it today where welfare is a subsidy for shareholders, do you support removing welfare so that we can stop subsidizing the wealthy?
UBI vs welfare doesn't really change the situation here. UBI may be more economically efficient than our current form of welfare, but that's a different discussion altogether. I'm only interested in the question of whether you really believe that welfare as it stands today is a subsidy for shareholders. Because if you believe that, then it seems the rational proposal would be to get rid of welfare.
Short answer:
I do not support removing welfare even though it subsidizes the wealthy
Long answer:
I don't believe that wealth redistribution is a bad thing inherently and I would not be for removing welfare to replace it with nothing. I think UBI is economically and socially Superior to our current welfare system but our current welfare system is better than nothing.
The cons to our current system are that it's increasing inequality and benefiting a fee people massively at the expense of society, but I'd rather shoulder that expense than let people die by exposing them to unfiltered capitalism which I believe would lead many people to bring entirely jobless and destitute
>but our current welfare system is better than nothing.
I feel like you're trying to have it both ways. On one hand you say that our current welfare system simply subsidizes shareholders. You seem to believe that if we phased out welfare that the poor would wind up in the same place they are today because they would demand higher wages. In other words, it provides no benefit to the well-being of the poor. And yet you say it's better than nothing. How can that be?
You're making jumps again. Shareholders and the poor are two subsets of society. Its possible for wealth to be moved from society as a whole to the shareholders and still benefit the poor, without taking money from the poor to do so.
I don't think the poor as a group would end up in the same place. I believe the wages would end up rising but less people overall would be employed. If you remove welfare then the people who end up without a job are going to be without anything and homeless/starve to death. The amount of time it would take for the new equilibrium to be met would also cause a lot of pain and suffering in the interim.
>I believe the wages would end up rising but less people overall would be employed.
Interesting, what are your thoughts on the minimum wage?
>If you remove welfare then the people who end up without a job are going to be without anything and homeless/starve to death.
I feel like if your options are working or death, there will be many more people working, not less as you suggested above. But I also think the imagery of people starving to death is unrealistic. Over 70% of the world's population lives on less than $10/day. The American poor is very wealthy by global standards and they have a loooong way down to go before they start starving to death. The worst case scenario of the American poor losing welfare while simultaneously somehow not being able to demand higher wages looks more like the American poor inching ever so slightly closer to the global average lifestyle than starving to death. I don't want that situation any more than you do, but let's not be overly colorful in our language.
I understand why UBI is more economically efficient than our current welfare systems. Anything that moves towards giving the poor money they can spend on whatever they want is a bonus in my opinion. I'd start with Medicare and Medicaid. Instead of paying directly for healthcare we should just cut a check to the elderly/poor and let them spend those funds on whatever they wish. However, I don't understand why you feel it would behave differently than welfare with respect to its "subsidizing the shareholder class." Unless you expect UBI to be high enough so that nobody would have to work, and then I'm not sure how the economy doesn't collapse on itself with so few people doing work and so few taxpayers.
It's not the purpose of a company to pay enough to completely cover an employees life costs. It is the role of governments to help those in need. Companies pay taxes (profits, part of social security, wages which support taxes, property taxes, and on and on) which helps fund this role of government.
If you require companies to pay enough to support the lifestyles of employees, than any person unable to generate enough value for a company will not get a job, will not have the opportunity to gather job skills to maybe get to that point, and will require full support from the government. And mandated higher wages leads to inflation, which puts the most vulnerable even further behind.
It's fairly reasonable for the least skilled to get a job that pays accordingly, with society picking up the slack. If that person ever increases in skills to move out of this, then they too will pay more in taxes to support the new group in need or least skilled.
I'm pro UBI and think we'd all be better off if everyone got enough to live and then companies could offer a penny a week if they wanted, since employment would not longer be tied to your ability to live.
Regardless of any of those arguments, I was responding to someone who said they hoped wealth redistribution didn't happen in his lifetime, and gave examples of it happening right now
I'd be pro UBI, but I've never seen the math where it works without violating one of: 1) insane tax rates that traditionally kill economies, 2) lower benefits for those most in need, or 3) simply wanting richer to hand money to poorer so they can not work much.
As such, I'm much more in favor of targeted assistance to make the most use out of limited resources.
And every one I've looked into will suffer from terrible inflation, probably defeating any gains. For example, if a person is willing to work a crap job to pay rent, this will not change no matter the money scaling. Give enough free money, then rents will simply rise (along with all other things for the same reason), to absorb the excess, and the same people will still end having to do the same work to keep their standard of living.
Free money is almost always inflated away by markets.
I don't know that our economy and technology is actually advanced enough to handle full UBI but there are places we could start. A food allowance for everyone would be good for instance and possible. Just no checks, here's x amount of money which will buy you enough food whether or not you use it on food.
Housing is another example. We don't have more empty house than homeless people in America. We don't necessarily have more house in downtown SF or NY but if we could set up a system where you could accept a house, with no real control over where, it would relieve some pressure off of people as a number of the population would accept that offer
I agree on the free markets inflating away free money. University costs are a perfect example where demand was artificially inflated with federal student loans, but the supply was not equally increased so the price just went up. If we started providing basics I'd believe they'd have to be controlled more like a utility. We try not to let market forces control water because weve decided that basic for everyone. So we give a company some garunteed profits in exchange for them not being able to wrong every last dollar out of the economic niche. We lose some efficiency, but gain stability
Targeted assistance might help better, but it's extremely difficult for the government as a single entity to try and provide help on the demand side without constraining the actions on the supply side. The increase in beuracratic costs also eats up much of the benefit
>A food allowance for everyone would be good for instance and possible.
This would likely just be absorbed into inflation. It's hard to simply give people free money without prices increasing to make the time/work tradeoff for the good simply remain constant.
> you could accept a house,
If you've ever been a landlord, you'd realize people would likely destroy the properties. Many homeless are not homeless because they don't have a dwelling; they're homeless because that have fundamental other issues that make them owning and maintaining any property impossible.
>If we started providing basics I'd believe they'd have to be controlled more like a utility
Any country in history that tried to centrally plan such a large chunk of their economy failed. It's a sure way to get massive shortages and corruption and cronyism.
The houses wouldn't just be for homeless who do have a high incidence of mental illness, it would be for everyone. As for the food money being destroyed by inflation, it might but giving general funds are a lot more likely to stimulate consumption than a targeted stimulus like college loans.
>Any country in history that tried to centrally plan such a large chunk of their economy failed.
There's problems and it wont go perfectly but we should still try to improve everyone's lives. I also disagree that anyone who tried to centrally plan such a large chunk of the economy has failed. Look at water and electricity, those are massive industries that are centrally planned. Central planning is not as efficient as a market based economy and is not the way to grow an industry or develop new technologies. It does work better than a market based economy when it comes to uninterrupted coverage which is why it's used in the utility model
> it might but giving general funds are a lot more likely to stimulate consumption than a targeted stimulus like college loans.
And vastly lower on total return. Investing in education will likely increase output overall. Investing in food and alcohol and TV will not.
And consumption will not even be increased if inflation eats the money, which it likely (and historically) will. It will simply rescale the dollar to make no one better off.
>There's problems and it wont go perfectly
Ignoring that it has spectacularly failed and destroyed lives and countries is not simply "problems." Repeating things that have been demonstrated to be terrible ideas is again a terrible idea.
>but we should still try to improve everyone's lives
Then let's use targeted use of scarce resources instead of wishful thinking and ignoring history. Otherwise we repeat ideas that sound good but fail such as rent control. The things you present are not new ideas. They have been tried and failed. Ham-handed allocation of scarce resources is almost always worse than targeted allocation. This is simple economics.
>I also disagree that anyone who tried to centrally plan such a large chunk of the economy has failed.
List a country that has succeeded at planning as large a piece as you're suggesting.
>Look at water and electricity, those are massive industries that are centrally planned.
No, they are not. They are locally planned, compete with each other, trade resources, and have plenty of free-market features to trade futures, trade stocks, and compete. They are absolutely not centrally planned.
Venezuela is an example of what happened when the central government takes over such markets.
How often do utilities compete? I don't have a choice on water hookup and electricity has only been a choice in generators recently. Also no one has actually done UBI long term and on a large scale. At this point I feel like you are being disenguous.
If you don't like the idea of UBI and think market only solutions are better, that's fine, but this is different than the government telling everyone they're making A widgets this year instead of B widgets
They don't often compete directly for you; the government gives them local monopoly. They compete to sell excess product on the open markets, which is why energy trading is a massive industry. By competing on that market, they indirectly compete for you, since your utilities can often buy capability from other markets. In short your pipes are limited, but the product you get from them is created in open markets, with your utility company being the last middleman in the chain to deliver goods locally. It's also why you can sell capability back into electrical grids in many places. There's a market for it.
So in that sense, probably every one of them competes.
This trading directly happens because there is no central planning. Central planning, as usual, is inferior to letting pricing determine how goods move. Your claim was this industry was an example of central planning, but it is not. Capability is not centrally planned - markets react to move goods where they are best prices by local merchants, like any other free market good. If you've never seen how this works here's an intro[1]
>Also no one has actually done UBI long term and on a large scale
If there is evidence that it fails on short term and small scale do we really need to make it bigger and longer to hurt more people before we address the reasons it fails? There have been several places that have tried portions of it, and they have matched what economic theory said would happen. At some point it needs a new idea or method before more people are subjected to historically damaging ideas.
UBI is simply welfare for more people. Those paying for it necessarily get less than with no UBI, and those getting it will receive more welfare. No UBI proposal I have seen is anything more than this - tax some people more to give others more.
There is ample evidence among countries that more welfare correlates with more people working less, and less overall productivity. Even the Canadian UBI experiments found this to be true.
When people work less, less is produced, and as a result society has less.
>At this point I feel like you are being disenguous.
About utilities? You think they're centrally planned and don't compete in markets. Both are wrong. So I don't think I'm being disingenuous - you're simply uninformed how things work. It's disingenuous to claim you understand something that you have not simply googled to see where your understanding fails, then not admitting it.
I'm pro UBI and think we'd all be better off if everyone got enough to live and then companies could offer a penny a week if they wanted, since employment would not longer be tied to your ability to live.
This will never work.
First, it is a myth that X amount of money provides adequately for everyone, in part because there is no standard issue normal person.
Second, money reduces friction in trade, thereby providing valuable efficiencies. But if income is entirely unrelated to creating or husbanding some kind of value, the entire system can rapidly come unraveled.
Not quite sure how. I ended up working at Walmart after college and had to steal food since I couldn't afford rent,student loans, and medicine. Pretty much everyone of my coworkers was in the same boat with student loans being the only difference.
If you think it's not happening I suggest you put all your assets in an account you won't access and then try and live for a few years off a retail job
Additionally:
No shit, I taught myself programming and I'm an engineer now. Not everyone is capable of doing this, and the fact that I managed was down to just as much luck as it was skill and effort.
It also doesn't change the fact that we are taking money from society and giving it to companies
I took an easy major to get a high gpa as I was trying to get into the military through ROTC and they care about your grade not your major. Then Obama got voted in on a platform of winding down the war, the ROTC detachments were told they could contract half as many people as they expected before the new president was even sworn in, and I got cut to graduate right after the recession with no real skills.
With the benefit of hindsight I could have done much better for myself,but I would not expect someone at that age to have the foresight to prepare for just how fucked your life plans can get
The Swiss did not join the EU while it maintains very close relations, which likely has very large impact due to current exchange rates.
On 6 September 2011, the Swiss franc effectively became fixed against the euro: the Franc had always floated independently until its currency appreciation became unacceptable during the eurozone debt crisis. The Swiss National Bank set an CHF/EUR peg that involved a minimum exchange rate of 1.20 francs to the euro, with no upper bound in place. The Bank committed to maintaining this exchange rate to ensure stability. The peg was abandoned on 15 January 2015, when renewed upward pressure on the Swiss franc exceeded the Bank's level of tolerance.https://en.wikipedia.org/wiki/Switzerland%E2%80%93European_U...
> The overall results from the survey show that 62 percent of Americans have less than $1,000 in their savings accounts, and a third of those under-savers have no savings account at all. The portion of savers with balances over $1,000 is 29.1 percent.
This is because savings accounts are an anachronism from another era and serve no modern purpose. It is misleading to conflate savings accounts with savings; no one I know puts their savings in a savings account and many people with plenty of savings don't have one at all. It would be surprising if most Americans had and used a savings account in 2018.
In the US, the median disposable income -- money you can either save or spend on luxuries after all typical living expenses -- is about $1000 per month. Savings are not an issue for the majority of Americans. Unless you define it as having a savings account with money in it.
Do they perhaps mean "free cash float", that is (regardless of what the account is called) money that is immediately available to spend without causing a cashflow disaster later in the month?
Not the OP, but I keep 1-2 months of normal spending in a checking account, and any excess income beyond that goes into investing in index funds. In the rare case that I need to have a lot of cash available for a big upcoming purchase, I'll either just keep that in my checking account too or in a money market account to generate a bit more interest. I do technically have a savings account, but I can't think of a good reason to use it.
EDIT: maybe if my savings account paid meaningful interest I'd use it more, but most retail banks these days don't.
Most of my savings are for short-term things currently (tuition mostly) and so it sits in a savings account with one of the higher APY banks (Ally, Alliant credit Union, and the like). However, when it's money I wouldn't have to pay back somewhere soon, it would definitely go to index funds.
Some banks are pushing towards a 2% interest rate and still FDIC insured, though they're only online. It's not great but part of a diversified account structure for us.
Given the extremely low interest rates savings accounts have been delivering, short term cash can go to wallet, or checking, and any cash you don’t need short term should go someplace that will earn more than a savings account, like a mutual fund or at least a CD.
You leave it in checking accounts or, if you are looking for interest/return, put it in an investment account. The movement between these accounts is pretty seamless at many banks these days. In my case, there are no fees associated with putting the money in investments so it makes it very cheap to put the money to work.
Savings accounts are essentially restricted checking accounts, so what's the point? The interest rates on both types are the same, at approximately zero (pennies of annual interest on a thousand dollars).
> Savings accounts are essentially restricted checking accounts, so what's the point?
Zero risk, but higher returns than a checking account. You may not care about the difference between 0% interest and 1.5%, but it is nice to have a few hundred $$ extra at the end of teh year.
The thing is that most savings accounts at big banks are closer to 0.15% than 1.5%. I think my Bank of America account made something like 42 cents last year.
Savings accounts are really only a 'mindset' thing, they serve no real good purpose. If you have a an emergency fund, why not put it into a high yield checking account? It's not hard to get 3-4% APY on $25k, which is far more than you'll get from a savings account. And if you have far more than that, you'd be losing money by having it sit around not getting interest.
https://www.depositaccounts.com/checking/reward-checking-acc... is a good start. You can also just look for Kasasa in your area.
Most have some requirements, like 10 debit purchases a month. A lot of people just buy amazon refills 10 times.
For no requirements, Memory Bank does 1.6% up to 250k.
Ah, you meant $25k as a limit because they give rewards and use a high rate for low balances as a technique to get new accounts (and the fees they get from you using the account). Still, I only see one offering above 3% and they pay 0.15% for anything over $25k.
I have a savings account at Marcus and it's 1.7% without any minimum, a high $1M max and no goofy rules to jump through.
Correct, and it's location dependent. Typically, there are no fees associated with these accounts. Many have multiple accounts at the same institution, or spread. From my minimal research, it seems you should be able to say, have 25K in each Consumers Credit Union, and Heritage bank, and effectively earn about 4% on $50k (NOTE: I'm not endorsing either of these institutions, do your own research). Though with requirements attached for each, which may or may not be worth the opportunity cost to you. The 1.6-1.7% rate seems to be the going best for no requirements involved.
What's the value of a "savings account" in 2018, though? Not to be flippant, but it's a bit anachronistic to even care about something that provides so little ROI, and if people are deriving greater meaning from that I'd hope the analysis is more nuanced.
There's not much point in investing less than $1000. People are getting hung up on the "savings" part of this. It could be a checking account, it could be cash in a jar. The point is that it's the amount of money available that isn't tied up in material assets like real estate, a car, etc. or isn't invested in something like a 401(k).
> People are getting hung up on the "savings" part of this. It could be a checking account, it could be cash in a jar.
People are "hung up" on it because, per the linked article, the survey literally asked about savings accounts. I have more money sitting in cash at home than I do in my savings accounts. The only reason my wife and I have savings accounts is Bank of America's Keep the Change thing.
If you purchase everything from a savings account you are going to get eaten alive in withdrawal fees.
Note the survey question literally asked about "savings accounts". I would answer that question with a number below $1,000, but I still have a significant reserve and no credit card balances.
Sinking funds aren't generally used for large numbers of purchases - but if they happen to be one month, you can just make a single transfer to a checking account.
That's probably because nobody uses savings accounts for large amounts of wealth. I have $0 in a savings account because a 3 month T note yields significantly more than the 1.4% Ally saving account that everyone seems to love
Would you rather have <$1k in savings in America or have a decent savings in a 3rd world country? Equating income to quality of life is 1st world centric.
Just my experience, but my first world poor friends, without exception are all bad with money. They have little understanding of how money actually works, have terrible spending habits, are incredibly risk averse, and carry a "money is evil" mindset.
If it's possible for you to live within your means (edit: putting aside illness, addictions, felonies etc), you can build wealth at a good rate in the first world. You may never be a multi-millionaire, but you can be financially secure and stable.