78% of Americans live paycheck to paycheck

[Cigarbutt]

5 hours ago, mattee2264 said:

 Oh and another thing. Everyone knows that massive amounts of excess savings were built up over the pandemic. In part this was because of stimmy checks and a stock market where retail traders made hay. But another factor was that if you can't travel, if you can't eat out, if you can't party and go to bars, if you spend all your time at home watching Netflix, and none of your peers can do so either then of course you are going to wind up saving a huge amount of money. 

This macro stuff may be a waste of time but it's interesting and who knows, it may mean something one day?

i disagree on much of the above.

-----

There seems to be some kind of misunderstanding coming from many sources (locker rooms to ivory towers). Individual savings rate does not affect aggregate savings. Individual savings mean disposable income minus consumption. If one changes behavior and increases spending (or investing), the individual savings rate of that person will decrease but the money spent (or invested) will increase another person's saving. Aggregate private savings has historically resulted from money printing which used to be tied to the general growth of the economy and the correlated growth in private loan activity at commercial banks, not anymore though.

Yes, starting in 2020, excess savings were built up, but not as an aggregate effect of net worth growth or (only) stimmy checks. The excess savings were built up from (slight simplification here, but in essence) commercial banks (effectively, on a net basis) buying securities (mostly government debt). Let's say mattee2264 buys a US Treasury and Uncle Sam sends the harvested funds to Cigarbutt, no additional aggregate net private savings is created. However, if the Bank of America (NYSE:BAC) buys the Treasury from mattee2264, to match the new asset held, it credits a deposit for mattee2264 and (magic of money printing) the aggregate net savings (private) increases to the extent of the increase in public debt.

Look at the following for a graphic representation:

An interesting conclusion is that the US effectively applied an MMT-like Friedman's helicopter money experiment and it looks like the net result is what the great thinker predicted. After a while and some lag, the only thing which changed is the general price level, not the underlying real aggregate net savings, with long-defunct thinkers suggesting that the outcome of such debt experiment would be closely tied to the productivity of the funds obtained from debt (there is a developing story here..)

Like many suggest, in real terms, for deposits or excess savings etc, 'we' (we, also meaning the typical paycheck-to-transfer-to-paycheck American, 78% or whatever) are back to where 'we' were before the experiment started. What happens next is where the money is but non-linear changes have to be considered?

Concerning what choices people had when services were curtailed, one may look at the following consumption picture and consider the possibility that the government borrowed in order to allow folks to buy excess goods (instead of later?).

Edited May 18 by Cigarbutt

[DooDiligence]

33 minutes ago, Dinar said:

That's funny, my college suit mate was from Mobile Alabama.  Black kid who played the saxophone, although he is 15 years younger than you are.   

 

Terrible place to be from. I remember my parents going to a school/church meeting when a black family was trying to get their kid into Pius. My parents had them over for dinner and the neighbors hated us afterwards because they thought my folks were trying to sell the house to black people (the place was for sale at the time). We moved to Milton, FL around 8th grade. No more futbol until I went to AATC in Ozark, AL (Airframe & Powerplant mechanic training), and another student organized a squad. I'd love to find a good sax player!

[Dinar]

5 hours ago, DooDiligence said:

 

Terrible place to be from. I remember my parents going to a school/church meeting when a black family was trying to get their kid into Pius. My parents had them over for dinner and the neighbors hated us afterwards because they thought my folks were trying to sell the house to black people (the place was for sale at the time). We moved to Milton, FL around 8th grade. No more futbol until I went to AATC in Ozark, AL (Airframe & Powerplant mechanic training), and another student organized a squad. I'd love to find a good sax player!

I was fortunate to hear Sonny Rollins live a couple of decades ago in Carnegie Hall.  Still love to listen to Coltrane.  You got to spend some time in NY for the music - we went an amazing Argentian music concert the other day - Pablo Ziegler.  

[DooDiligence]

1 minute ago, Dinar said:

I was fortunate to hear Sonny Rollins live a couple of decades ago in Carnegie Hall.  Still love to listen to Coltrane.  You got to spend some time in NY for the music - we went an amazing Argentian music concert the other day - Pablo Ziegler.  

 

Nice. I'm going to see these guys in Birmingham tomorrow.

 

 

[Hektor]

Why paycheck to paycheck may be expected to continue?

 

https://www.wsj.com/personal-finance/money-discipline-downsides-delayed-gratification-5770e346

 

The Downside of Delayed Gratification

We’re all told that it pays to be disciplined in our spending and consumption. But the advice can backfire.
 

 

[james22]

Joanne Hsu, who is the director of the University of Michigan’s consumer sentiment survey, told CNBC on Friday that she thinks Americans have abandoned plans to save money as they see their financial goals look less attainable and are spending money instead.

 

“This positive spending is not a reflection of some sort of internalized secret sense of confidence that consumers have,” he explained. “And instead my interpretation is that consumers see that a lot of aspirational goals that we talk about as part of the American Dream—homeownership, paying for college, paying for college for your kids, having a comfortable retirement—with high prices and high interest rates right now, those aspirational goals just feel increasingly out of reach.”

 

And as a result, consumers have “given up” on saving for those goals, Hsu added, noting that the still-strong labor market allows them to spend now.

 

https://fortune.com/2024/05/19/economic-outlook-consumer-sentiment-inflation-high-rates-saving-american-dream-spending-labor-market/

[Paarslaars]

That is quite depressing...

[Castanza]

Should the labor sector fail....this will be the demographic that will soon be voting themselves money with the proxy politician promising them "bread and circuses."

[nsx5200]

It might be a reflection on the negative impact social media on people's wallet.  Going to have to quote Charlie on this one again, since he's figured out a big chunk of the world already:

Charlie Munger: ‘The world is not driven by greed, it’s driven by envy’

 

Dug up these studies:

https://www.bankrate.com/banking/is-social-media-to-blame-for-unrealistic-money-expectations/#social-media-s-impact-on-your-budget

https://www.forbes.com/sites/andrewarnold/2018/12/27/heres-how-social-media-is-affecting-your-savings-goals/?sh=7b0a1e036436

https://www.bankrate.com/personal-finance/social-media-influences-consumer-spending/

 

So it seems like the group you hang out with online affects how you save, and COBF probably has a positive effect on savings rate.

[Blugolds]

9 minutes ago, nsx5200 said:

It might be a reflection on the negative impact social media on people's wallet.  Going to have to quote Charlie on this one again, since he's figured out a big chunk of the world already:

Charlie Munger: ‘The world is not driven by greed, it’s driven by envy’

 

Dug up these studies:

https://www.bankrate.com/banking/is-social-media-to-blame-for-unrealistic-money-expectations/#social-media-s-impact-on-your-budget

https://www.forbes.com/sites/andrewarnold/2018/12/27/heres-how-social-media-is-affecting-your-savings-goals/?sh=7b0a1e036436

https://www.bankrate.com/personal-finance/social-media-influences-consumer-spending/

 

So it seems like the group you hang out with online affects how you save, and COBF probably has a positive effect on savings rate.

 

Social media, combined with every tick tock and YouTuber driving Ferraris and living in mansions telling every kid that its easy and totally normal. 

 

Then you have all the “investment bros” telling them that they made millions “with this one simple trick Wall street doesn’t want you to know about” and that secret can be yours for a membership to our community or joining my online training, buy my book/coaching etc. 

 

Its constant bombardment by luxury in your face and its easy! If you cant do it there is something wrong with you. I dont know if there has ever been a time in history with as much constant bombardment of get rich quick schemes, or at least the access to the influenceable like there is now. 

 

Its no wonder the author of “the algebra of happiness” I forget his name, but he is a professor, said that in polling his students that the majority expect to be making like $750k/yr out of college or within a few years of graduation. 

 

Social media et al creates these unrealistic expectations and when they fall short they feel like a failure and give up. 

 

Everyone wants to get rich quick, live in the mansion, buy the Ferrari just to trash it in a corn field for a video etc basically every single thing besides what actually works, acquiring a skill to make themselves marketable and command a premium wage, starting a business and making money off other peoples time working for you, developing a product or service with a competitive advantage etc. And then comes the hardest of all that they never see, plain old fashioned hard work, they never see that in videos/social media. 

 

Delayed gratification, hard work, intelligent allocation, decent runway and sticking to the plan isnt sexy, and doesn’t get millions of views on YouTube. 

 

It used to be “keeping up with the Joneses” maybe meant your immediate next door neighbor or group of friends, there may have been a slight income disparity but was still relatively close, now the “Jones’” has evolved into the entire world around you with people that they feel an attachment to by viewing every new video drop every week or multiple times a week. Kinda wild when you think about it. 

[Blake Hampton]

On 5/17/2024 at 11:09 PM, nsx5200 said:

The system's rigged against the common naivete.  IMHO, these are the major input that leads to such poor outcome:

- Bell curve, half of the people are below average intelligence

- Built in cognitive bias thinking they are smarter than others (https://en.wikipedia.org/wiki/Illusory_superiority), AND thinking they can outsmart most people, even when they're below average intelligence.

- Herd mentality/keeping-up-with-the-jones/envy pushes those making less money to keep up with the spending of those making more money in the same group.

- Marketing promotes unnecessary spending due to a side-effect of free market capitalism.  Worse, marketing is one of those things that scales, so the best marketing will take over the lesser marketing, causing greater overall effects that leads to money to separate from people.

- Coupling all the above elements leads to such Lollapalooza Effect.

 

So somebody who, by default, is not trained to see these forces and act against them will lead to the separation of their money unnecessarily.

 

You can see it everywhere... people wanting a bigger/second house, luxury car, mechanical watches, the latest smart phone, Birkin bags, and even Stanley water bottles too.  I remember getting sucked into collecting Garbage Pail cards back in the day.  Get them while they're young.  Looking at Charlie and Buffet, they've pretty much avoided all those (except for the Indefensible).

 

IMHO, this is really the ultimate truth to building wealth:  "you become rich, literally, the moment you don't desire, or have the need for more money".  Reminds of this clip from The Devil's Advocate.

 

But thinking about the alternative if everybody lived like Buffet and Munger... I can see the destruction of many many industries.  I guess we've seen a mini-version of that through cancel culture, but rise of new ones in social media, so it probably have gotten worse.

This is a good point. If so many people were to stop spending, where would all the profits come from?

[Jaygo]

Our system isn't made for saving. I personally feel it is totally normal to live paycheck to paycheck. 

 

As a lifelong super saver ( 30-40%) i have realised that its more important to earn than to save. I think the earning power of people is more of the issue rather than an unwillingness to save.

 

This season is turning out to be a banger at least for a mid class tradesman, im expecting around 400k beaver bucks at the end of the year and I can really feel my spending habits creeping up and I havent even seen the money yet. 

 

kids horse riding camp 8k sure

concert tics for my family and my sisters 2100 sure

rental cottage for 10 days 9k sure

talk of new iphones for wife and I 

 

10 years ago i would have balked at all of these expenses and now that I feel I have the money i'm ok with it. I am not living paycheque to paycheque because I saved so much over the years but if i was only going to bring in 100k this year i think i may spend every single penny. 

 

SD a while ago commented that paying of my mortgage may be a good idea rather than investing and I am starting to come around to that even though it may not be the best outcome. I can definitely invision a down year for business but a steady year of higher expenses and having the protection of paid shelter sounds pretty good.

 

 

 

 

[Castanza]

21 minutes ago, Jaygo said:

SD a while ago commented that paying of my mortgage may be a good idea rather than investing and I am starting to come around to that even though it may not be the best outcome. I can definitely invision a down year for business but a steady year of higher expenses and having the protection of paid shelter sounds pretty good.

 

Paid mine off and don't regret it a bit. Nothing like waking up in your early 30s with very little financial stress. Debt chains you to your investments and your employment. I said early on I have no desire to have a ball and chain on my whole life hoping to enjoy a few years once I reach 65+. The idea of traditional retirement is ludicrous to me and I'm not sure I buy the stability/predictability of it moving forward. 

 

Peace of mind and freedom to do is priceless. 

 

edit: Everyone will tell you you're dumb...ignore them.

 

We all love businesses that gush FCF now not 30 years from now....so why not run your life the same way? Beg borrow and steal during your startup phase. Reduce capex and then focus on FCF and flexibility. Nobody is guaranteed tomorrow so imo a healthy balance of now and later is preferred to only later. I see a lot of people who retire with terrible health and can't do much but sit on a couch and slowly fade away. No thanks!

Edited May 21 by Castanza

[TwoCitiesCapital]

I'm going to go ahead and disagree with all the social media hate. 

 

Let's not forget most boomers don't have enough to retire either and they lived in age before social media when pensions were a thing. Our government, made up of boomers, spends like drunken sailors regardless of which party is in charge. 

 

It's just humans, in general, struggle with delayed gratification and savings. It's not a  particular demographic or social media's fault. It's that people, in general, suck at this. 

Edited May 21 by TwoCitiesCapital

[james22]

26 minutes ago, TwoCitiesCapital said:

It's just humans, in general, struggle with delayed gratification and savings. It's not a  particular demographic or social media's fault. It's that people, in general, suck at this. 

 

Sure, for good reason. Evolutionary psychology still has us uncertain about future rewards.

[SharperDingaan]

Pay the mortgage off thing .... at the simplest level this is the house/apartment that you own and live in (ie: principal residence in Canada). 6 main benefits;

• Financial control. Pay the mortgage off, and your monthly dividend is tax-free savings on the now cheap shelter (no mortgage) in a very nice neighbourhood; money works for versus against you. 
• Efficient taxation. Borrow against the portfolio to pay the mortgage off, and the margin interest paid is tax deductible; tax man works for versus against you. (Smith manoeuvre)
• Less stress. The lower the mortgage the less you need to come up with every month; a big deal if you have a variable income, as there will inevitably be some occasional down years. 
• Life enhancer. Kids are expensive; lower your mortgage payment ('cause you paid some of the mortgage down) and the more you can afford them! Obvious, but seldom recognised by many.
• Life changer. Hero today, bum tomorrow; but pay off your mortgage early; and you're a bum with both a pot to piss in, and the wherewithal to start again.
• Anti-fragile. The worse the economy gets, the more the paid-off shelter contributes to your well being. Can't be evicted next month and made homeless, because you couldn't make the rent or mortgage payment.

 

As the portfolio gets more volatile/bigger there are other benefits as well; but it requires more sophistication, particularly when there is a high weighting to commodities and BTC 

 

SD 

 

 

Edited May 21 by SharperDingaan

[Ross812]

I don't agree with paying off the mortgage especially if you have a low fixed rate from 2009 to 2022. Math favors 100k in home equity a 400k mortgage at 4% 30yrs fixed and 400k in liquid investments versus a 500k illiquid asset. 

 

I can pay my note off 10x over with a wire, but why would I make the bank whole on a note they're underwater on?  I even did a cashout refi @2.8% when inflation was running over 4% to buy a vacation home in 2021 because I don't turn down free money. Run your finances like a business. 

[Castanza]

32 minutes ago, Ross812 said:

I don't agree with paying off the mortgage especially if you have a low fixed rate from 2009 to 2022. Math favors 100k in home equity a 400k mortgage at 4% 30yrs fixed and 400k in liquid investments versus a 500k illiquid asset. 

 

I can pay my note off 10x over with a wire, but why would I make the bank whole on a note they're underwater on?  I even did a cashout refi @2.8% when inflation was running over 4% to buy a vacation home in 2021 because I don't turn down free money. Run your finances like a business. 

 

The standard financial response  I don't disagree with the math. You can't put a price on the other things. No longer servicing a mortgage means my wife can raise our kids more (as she wishes) and work less. Less daycare costs etc. I work from home, get to take my son for walks or go tot he park on my break. etc. Something you can't get back in retirement. I be a lot of retirees would give that 400k liquid asset in a heart beat if hey could go back and have more time with their kids/family. 

 

I by no means want a life that resembles a business where I'm always thinking about money or how to make an extra percentage point here or there. But I'm a simple man who lives a simple life. Yeah I enjoy investing and get the importance of sound financials. But the less I think about it the better! 

 

I have zero desire to own a vacation home, go on 20k vacations, or own fancy sports cars. Not my cup of tea! Nothing wrong with that that choice if you do. And if you do, your approach makes sense. Different strokes for different folks! 

 

 

[james22]

[Blake Hampton]

1 hour ago, james22 said:

Interesting piece.
 

It’s crazy because 500 years itself could almost be sort of a stretch. For most people at least, immediate returns were probably still important as close as 100-200 years ago.

 

Is it really possible that this is somehow hardwired into us as humans?

[james22]

50 minutes ago, blakehampton said:

Is it really possible that this is somehow hardwired into us as humans?

 

How could it not be?

 

Only those adaptations that aided our ancestor's survival and reproduction were passed on.

 

(A preference for immediate rewards over those uncertain is the least of our environmental mismatches today.)

[RichardGibbons]

30 minutes ago, james22 said:

Only those adaptations that aided our ancestor's survival and reproduction were passed on.

 

FWIW, this is a misunderstanding of evolution. Lots of stuff gets passed on that didn't aid our ancestor's survival and reproduction. All something needs to be passed on is to not be catastrophic before reproduction.

[Blake Hampton]

1 hour ago, james22 said:

 

How could it not be?

 

Only those adaptations that aided our ancestor's survival and reproduction were passed on.

 

(A preference for immediate rewards over those uncertain is the least of our environmental mismatches today.)

 

The thing that I don't understand is how an "urge" gets passed on. I can wrap my head around health and looks, but feelings toward certain actions seems odd to me. I'm not disagreeing, I'm just curious.

[TwoCitiesCapital]

5 hours ago, Castanza said:

 

The standard financial response  I don't disagree with the math. You can't put a price on the other things. No longer servicing a mortgage means my wife can raise our kids more (as she wishes) and work less. Less daycare costs etc. I work from home, get to take my son for walks or go tot he park on my break. etc. Something you can't get back in retirement. I be a lot of retirees would give that 400k liquid asset in a heart beat if hey could go back and have more time with their kids/family. 

 

I by no means want a life that resembles a business where I'm always thinking about money or how to make an extra percentage point here or there. But I'm a simple man who lives a simple life. Yeah I enjoy investing and get the importance of sound financials. But the less I think about it the better! 

 

I have zero desire to own a vacation home, go on 20k vacations, or own fancy sports cars. Not my cup of tea! Nothing wrong with that that choice if you do. And if you do, your approach makes sense. Different strokes for different folks! 

 

 

 

+1 

 

I'm torn on this. Because I have a mortgage @ 2.75% and know financially it's the very last thing I want to put marginal $ towards. 

 

But I also hate my job and would love to quit and just take some time, and the mortgage is basically the only impediment to quitting and/or taking a lower paying, but more satisfying, job. 

 

Freedom and flexibility is hard to put a price on. But it's worth something. 

 

1 hour ago, blakehampton said:

 

The thing that I don't understand is how an "urge" gets passed on. I can wrap my head around health and looks, but feelings toward certain actions seems odd to me. I'm not disagreeing, I'm just curious.

 

Same as anything is born with instinct - just like babies instinctively root and mouth for a nipple when they're hungry. 

[james22]

1 hour ago, blakehampton said:

The thing that I don't understand is how an "urge" gets passed on. I can wrap my head around health and looks, but feelings toward certain actions seems odd to me. I'm not disagreeing, I'm just curious.

 

We're hardwired for any number of things, status (by display) the most relevant to this discussion:

 

https://hbr.org/1998/07/how-hardwired-is-human-behavior