As we always say, there are countless studies and surveys on debt, living above your means, etc. This is why we continue to write about this topic, and maybe people can learn from my personal experiences, advice as well as these studies. We hope some of the tips and suggestions, as well as experiences we write about, sink in with Americans. And if they don’t work at least we can say, as always, we tried to help and provide guidance.
The latest study shows that only about 23% of Americans are debt free, and the average amount of outstanding debt per person now stands at under $40,000 according to the Northwestern Mutual’s Planning & Progress study. The study shows the number of people that are debt free (at 23%) is a decrease from previous years. Only one quarter of Americans are debt free! A strong economy and job market…and Americans continue to run up the debt…a bad combination.
Now while each study is slightly different in what they may say (the percentages, amounts of debt, savings, etc.), the theme is always the same. The vast majority of people live well beyond their means, they do not save or invest, and they run up the bills…often unnecessary ones. This is true for both low income families who live in rural areas or major cities, and it is also true for high income earners from rural areas or major cities such as LA or NYC.
As we continually write about, having your money work for you is so important. That is what wealth creation is all about. I have been having my money work for me since about 15 or so, when I bought my first investment. Or course it was minimal way back then, but it was a start and I built on it. While I have carried some good debt from time to time, I have never been “upside down” and I could always pay off my bills with cash on hand.
This latest study from Northwestern Mutual’s Planning & Progress is kind of astounding. Credit card debt has increased at about 25% from last year, with the total due by all Americans at way over 1 trillion dollars. The average household is almost 40,000 in debt, not including mortgages. And Americans are at historical levels of debt at a time of increasing interest rates, with the federal reserve continuing to jack up short term rates. This will will directly influence the monthly interest cost to Americans, with more of their income going to service those debts.
The Northwestern Mutual’s Planning & Progress Study of 2018 also confirms people spend so much money on “wants” and not “needs”. Even though Americans are in record amounts of debt, they continue to buy unnecessary things. The study analyzes spending on confirms that about one third of what people spend each month for their household is a “want”. Just imagine if you cut some (or most of this) out of your budget…if you stopped spending money on wants and rather saved/invested and have your money work for you. Things could be so much different.
Now once again, there is nothing wrong with spending money on a “want”…but only if you can truly afford it. And is this study shows, as well as many others, is that the vast majority of Americans can’t afford a “want”. They do not save for retirement, they do not save for a “rainy” day or emergency expenses, and they spend money frivolously.
We report on the average retirement savings be well under where it needs to be, with people in their 30s or 40s only having 50 to 150K in retirement. If the person has spent their money only on needs and also saved and only have that in their retirement accounts, then we commend them. If you are spending almost all your money on needs and do your best at saving, then good for you! But if you have 100K in your retirement accounts and spend a third of your income of “wants”, then that is obviously another story and is not good at all.
The data from Northwestern Mutual’s Planning & Progress shows some of the top expenses that people are spending their income on for “wants”. They include eating out/nightlife, which is at 15%. Clothing and makeup/personal care is at 13%, and leisure travel is at 10%. If someone can afford to travel, the great! If someone can afford those latest shoes, suits, dresses, or makeup, then good for them! But when they can’t, the study from Northwestern (as well as many others) continue to show Americans use credit cards and run up their debt to splurge on these wants.
Just one more study that shows the precarious financial position of the average American. As is normally the case, much of the damage is self-inflicted as well…or a form of self-destruction.