September 25, 2018

Americans’ Compulsion for Clutter

Anthropologists took a deep dive into Middle America’s clutter a few years ago, and here’s what they found:

A wall of shelves holding hundreds and hundreds of Beanie Babies and dolls. Giant packs of multiple paper towels, cleaning fluids, Gatorade, and Dixie cups piled high in the garage or laundry room. Frozen prepared foods jam-packed into twin refrigerators in the kitchen and garage – enough to feed a family for weeks.

I write frequently about the financial challenges facing the middle class today and their perception that the American Dream is slowly and inexorably eroding. This feeling is very real.

But surely hyper-consumerism has something to do with our financial stress. U.S. households have more possessions than in any other country, UCLA anthropologists said in this video:

Money spent unnecessarily to stock our own personal Big Box store in the garage leaves much less for long-term goals like savings, retirement, and college tuition – the same expenses middle class families struggle to afford.  “We buy stuff we don’t need with money we don’t have,” summed up one commenter on the video’s YouTube page.

The United States has long been a prosperous and material culture. But anthropologist Anthony Graesch argues that the magnitude of consumption has grown by leaps and bounds. This trend has probably been encouraged by the proliferation of inexpensive imports from countries with lower wages. Over a lifetime, these small expenses add up to boatloads of money.

“The sheer diversity and availability and fairly inexpensive array of objects that are out there – this has significantly changed over the years,” Graesch said. Toys are a prime example. “We’re perhaps spending more on kids’ material culture than ever before.”

Minimalism goes in and out of vogue, but there are few minimalists among us – this takes work, self-control, and a willingness to part ways with sentimentality. For the rest of us, there’s a personal finance lesson in this video. …
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June 26, 2018

1 in 4 Can’t Afford a Summer Vacation

What a drag. One in four Americans said they can’t afford to take a vacation this summer.

The 3.8 percent unemployment rate is at its lowest since 2000, when the high-technology industry was going gangbusters. Despite the economy’s current strength, the cost of a vacation puts it out of reach for millions of people.

The average family of four spends about $4,000 on vacation, Bankrate said. Air fares don’t seem to be the issue – they are lower now than they were five years ago. But families living on a limited budget are more likely to drive, and the price of gasoline has shot up 25 percent over the past year, to around $2.90 per gallon.

Many people are shortchanging themselves on vacations, because they are “living paycheck to paycheck,” analyst Greg McBride said in a recent Bankrate blog.

Indeed, workers paid on an hourly basis can’t seem to get ahead. Their wage increases, adjusted for inflation, have been flat over the past year. Further, one in four U.S. households couldn’t come up with $2,000 even in an emergency, according to one widely cited study a few years ago. A summer vacation is probably out of the question for them.

Everyone needs a little time off to decompress and relax. Yes, it would be great to go on a deluxe fishing trip to Canada or cycle around Tuscany for two weeks, but there are more affordable ways to enjoy a few days off. A “staycation” is better than nothing. And the cost of a trip can be kept under $500 – one in four people do it, Bankrate said.

But cost isn’t the only reason people skip their vacation – family and work obligations also get in the way. A majority of workers, according to Bankrate, aren’t even using all of their paid vacation days.Learn More

June 21, 2011

Unseen Risks Challenge Consumers

Financial-product complexity isn’t talked about on Capitol Hill, where Congress is arming itself for battle royale over the appointment of Harvard Law School professor Elizabeth Warren to head the new Consumer Financial Protection Bureau.

But some economics and business professors are sticking up for the financial consumer, who they say faces an “ever-widening set of financial options” and “dizzying amount of information.”

“Households are expected to make decisions about pension plan contributions and payouts, to choose from a wide array of credit instruments to fund everything from home purchase to short-term cash needs, and more generally to assume a greater level of responsibility for their financial well-being,” Harvard economists Brigitte Madrian and John Campbell, Harvard Law professor Howell Jackson, and Peter Tufano at the Harvard Business School wrote in a recent paper.

“There is growing evidence that consumers make avoidable financial mistakes” with “nontrivial financial consequences,” they said.

Published in the latest issue of the Journal of Economic Perspectives, the paper used three case studies to support their call for more creative regulation: mortgages, payday loans, and 401(k)s. …Learn More

June 16, 2011

Complexity Dogs Financial Consumers

There is a race between financial companies and their consumers, and the consumer is dead last.

It has become virtually impossible for regular folks to keep pace with Wall Street’s increasingly complex financial products or the confusing bells and whistles being attached to once-familiar products. Look no further than the “basic” checking account, which is no longer basic, according to a recent study by The Pew Charitable Trusts. And forget about deciphering “universal variable life insurance.”

Evidence of this complexity abounds in the personal finance section of The Wall Street Journal, which recently ran an article about the profusion of “draw-down” products to help retirees use their 401(k)s to lock in a steady stream of income. The newspaper also warned about the banking industry’s new push to sell “professional credit cards,” which aren’t subject to regulations that limit controversial billing practices.

Even with checking accounts, the devil is in the details. In “Hidden Risks: The Case for Safe and Transparent Checking Accounts,” Pew analyzed fees in 250 checking accounts – that’s how many were offered just by the nation’s 10 largest banking companies. Learn More