The average American says they need to earn $233,000 a year to be financially
comfortable. But in 2021, American workers on average made only
$75,203 annually.
Americans are sort of looking at how much money they would like to have to be financially secure and that
ends up being basically three times what the average income is in this country.
And to be essentially wealthy or really successful, it's magnitudes above that.
72% of Americans said they weren't financially secure given their current finances.
And more than a quarter of Americans said they'll likely never be financially secure.
By the numbers, their debt is lower and their savings are higher coming out of the pandemic, but they're more
anxious about what's going to happen next, if they have job stability, if they're going to be able to have
a secure retirement.
With well over half of Americans living paycheck to paycheck, many are failing to meet some of their modest
financial goals.
There are actually millions of people struggling.
It's not something that people want to talk about.
But if you are in a place where your financial security feels super precarious, you're not alone
and it's not your fault.
So how did it become so difficult to be financially secure in America and what can you do about
it? Let's do some budgeting.
Americans working full-time earned a median monthly income of about $4,400 during the second
quarter of 2023.
The average worker takes home 75.2% of gross wages after taxes and benefits,
shrinking the take-home pay to about $3,308.
And that just isn't enough to cover the cost of living in America today.
The cost of health care, that has skyrocketed.
The cost of attending college has skyrocketed.
The cost of purchasing a home has skyrocketed.
But nowhere has anyone said wage growth is up 15%, right?
Take a look at some of the most essential expenses for Americans.
The median monthly rent in the U.S is $2,029 as of June 2023.
That amount already accounts for over 46% of the Americans' median pretax income.
But most US agencies classify spending more than 30% of one's gross monthly income on rent
as being rent burdened.
Meanwhile, the median mortgage payment for a 2400-square-foot house was
$1,957 per month.
However, a common rule of thumb advises spending 28% or less of your pretax income on
mortgage payments.
For the median gross monthly earnings, that translates to just $1,232.
As we talked to households and talked to consumers out in the real world, especially those say under 40,
housing is the big issue.
You know, rent, rent, rent, mortgage, mortgage, mortgage.
It is the biggest concern that people aren't going to be able to make the next payment.
Inflation is really hurting individuals having stability in their housing.
And I think sometimes people, we underestimate that if you have uncertainty in your housing, it causes
uncertainty everywhere.
Housing is also the reason why cities have become more difficult to afford.
Americans said it would require more than $1 million in net worth to be financially comfortable in places
like San Francisco, New York, and Southern California.
This is why we've seen some migration or mobility around the country where some people say, 'I'm living
in a high-cost state like California or New York.
We really want to sort of pack up and go to an area that's less expensive.' And one of the ironies of that
is those places that were cheaper before are now becoming more expensive.
Americans spent on average $690.75 on food every month, according
to the latest data from the Bureau of Labor Statistics.
That amount is significantly higher than any of USDA's estimated grocery bills, including more
generous and liberal food plans.
Add the out-of-pocket health expenditures that cost the average American $96.42
every month, and you get a total expense of $2,816.17 for
renters and $2,744.17 for home owners.
That amount already accounts for 85% of the median take-home pay for average American renters
and over 82% for an average homeowner.
This is excluding other essential expenses like transportation, child care, and debt payments.
Many Americans are really struggling with just the increase of costs of living and food
and housing.
Utility bills have gone up.
Car insurance has gone up.
Homeowner's insurance has gone up.
And how can they pay for them but also meet other goals that they have too?
Budgeting experts advise Americans to spend just 50% of their net income on
essentials, 30% on wants, and 20% on savings or paying off debt.
We see that allocation shifting significantly where people are spending
75% of their take-home just on needs, which leaves very little for
wants and very little for saving for your financial future.
So depending upon where you live and of course your income, many Americans really cannot meet that
target allocation.
So much of managing your financial life in America today is like drinking from a fire hose.
Many households are not able to show up and impose a framework of their own design onto their
finances. Many are still in this reactionary space where they're just trying to figure out how to make
ends meet.
The Federal Reserve has implemented 11 interest rate hikes to combat inflation since March
2022, but more than a third of Americans said rising interest rates kept them from financial comfort.
Higher interest rates really can stand in the way of affordability for many financial activities
or decisions that people want to engage in and home purchases is sort of at the top of that list.
Look at the person who was going to buy a house that was, let's say, $375,000 two
years ago. Their monthly payment would have been less than $2,000.
Now it's about $3,400.
And it's the same house, right?
The only thing that has changed is the interest rate.
Purchasing a car is more expensive.
It's more expensive to maintain a balance on a credit card with the new offers for a credit card, even for
the best-qualified individual being at 20.5% and other people are paying closer to
30%.
The cost of capital is going up very rapidly and many of the kind
of toeholds we saw for lower-income households was because they were having access to credit and to home
loans and to other things in a relatively flat economy where they still had a good job market.
The ability to access credit, both for small businesses and for households is getting much harder
as the financial system becomes more risk-averse in that space.
Credit is essential because Americans don't have the savings to cover big expenses.
More than 40% of Americans blamed insufficient retirement funds or emergency savings as a reason for
financial insecurity.
For a lot of people, just to feel subjectively, feel financially better, they need some amount
of savings. A lot of financial planners will say three months of your income.
That's for many people, so overwhelming that they can't even begin to think about it.
More than half of Americans today said they didn't have at least three months of emergency expenses saved,
including 22% that said they had no emergency savings at all.
It doesn't take unemployment to really knock somebody out of whack with respect to their personal finances if
they're among the many Americans who say they cannot afford a $1,000 emergency expense and to
pay that from their savings.
The reality is, if expenses are routinely higher than your income, you are not going to be able to put
away meaningful sums.
There are many, many households who do the verb of saving.
You see money go in to their account all the time.
It just doesn't stay there because they are routinely hit with a need to grab that little bit of
money and use it for some kind of income shock or unexpected expense or even expected expense.
36% of Americans said they had more credit card debt than emergency savings.
According to Experian, an average American holds a debt balance of
$96,371, which includes several loan products like credit cards, auto
loans, and mortgages.
More than a quarter of Americans said debt was what kept them from financial security.
Debt is a way of channeling some of our financial resources, and that can be a very
effective tool.
Many of us are fans of credit cards that have rewards, for example.
But if you're not paying that principal or debt off within the billing cycle, that's when those
double-digit percentage interest rates hit and that can then exact a toll on the other
aspects of your personal finances.
How do we properly address this so that people cannot be in the cycle of just focusing on paying
debt and necessities, but can even think about transitioning to that other 20% and creating an
emergency savings which causes financial stability or even saving for retirement, which is the
goal of creating future financial stability in retirement.
The fact that many Americans are living in financial insecurity poses a big risk to the economy as
a whole.
There's a reason why we measure and monitor very closely things like consumer confidence or
consumer sentiment, because what populates those data points are everyday measurements
like inflation and the strength of the job market.
I think Covid really showed us that households when they don't have a level of stability and
security, are actually the primary foundation of whether the economy can be strong or not because we
are so based on consumer spending in this country.
Public policy can greatly improve Americans' chances of achieving financial security.
So, for example, Social Security is the bedrock of most people's financial security in retirement.
It's not the only source of their retirement income, but it keeps a lot of older people out of poverty.
And we know that Social Security needs some reforms in order to maintain its same level of benefits.
And then also anything we can do to make sure that employers are offering any kind of retirement savings
opportunities, emergency savings opportunities at work, offering employees the ability to enroll in
benefits, whether that's health insurance or insurance for life insurance or disability insurance.
You know, employers are a key part of this too.
And public policies play a big role in terms of what employers can offer and at what price they can afford
it.
The households' willingness to work toward financial security is also important.
Ultimately, the answer here is that solutions have to be arrived at at the macro level as
well as the household level.
And so at some level, we all need to try to own our own financial success by managing our money as
well as we can across the range of areas like emergency savings and retirement.
Financial advisors say the first step is to have a clear goal.
What do you want to achieve personally?
What do you want to achieve at work?
When do you want to retire?
What do you want to do for others?
And write that down.
But the key to success comes down to budgeting.
Everyone should budget.
What we say is it's not what you earn, it's what you keep.
And so think about and have some transparency of where is your money going?
And then make sure the budget that you have aligns with the goals that you wrote down.
If you say you want to retire early, are you saving more to retire early?
If you want to put your children through college, if you want to be debt free, are you paying more on your
student loans? Are you paying more on your credit cards so you can be debt free?
Make sure that your budget aligns with your goals.
There are actually millions of people struggling.
It's not something that people want to talk about.
But if you are in a place where your financial security feels super precarious, you're not alone and
it's not your fault.
Many people who have really high incomes and a lot of savings still feel financially anxious.
So don't feel like this is your fault or something to do with the fact that your income isn't enough.
You know, we all have to deal with this in different ways and the most important thing you can do is just
acknowledge that and deal with it and not try to avoid it.