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The middle class challenge

By Barbara Whelehan · Bankrate.com
Friday, October 25, 2013
Posted: 3 pm ET

Are Americans completely out of touch with reality?

Six out of 10 middle-class Americans say their chief financial concern is "paying the monthly bills," according to the latest Wells Fargo Middle Class Retirement study. That's up from 52 percent last year.

Paying bills is important, so I'm not surprised it's a top day-to-day concern. But this finding struck me as incomprehensible: 42 percent of middle class Americans say it's impossible to save for retirement and pay the bills. Really?

Fully a third plan to work until "at least 80" because they don't expect to have enough saved.

How many 80-year-olds do you know in the workforce?

Most of those surveyed -- 877 out of 1,000 people -- were between ages 30 and 75 and earning somewhere from $50,000 to $99,999 or had investable assets of $25,000 to $99,999.

We're talking about people who have or make decent money.

The study also revealed that people suffered both fear of the stock market and apathy about investing:

  • 52 percent are afraid of investing in the stock market because of its volatility.
  • 51 percent overall say they have "little interest in learning about investing."
  • Among those with little interest in investing, 60 percent are in their 50s and 60s.

Is it possible for middle-class Americans to pay their bills and save for retirement?

"In general, the best way to assess their situation is to develop a budget and a plan for saving," says Laurie Nordquist, head of Wells Fargo Institutional Retirement and Trust. "Working with a budget and a plan for saving for retirement provides the roadmap. In our survey, we saw that across income levels, those with a plan saved three times more than those without."

On the same planet but in a different world

As I was pondering our nation's apparent lack of interest in retirement planning, I heard a piece on NPR Friday morning about what poor people in Africa do with money that is sent to them directly. Do they squander it on tobacco, alcohol and gambling, or do they invest it in something worthwhile? The story by David Kestenbaum opened with an interview of Kenya's Bernard Omondi, who had expressed delight after receiving $1,000 in cash -- "roughly what he might have made from a year of work."

A study by Innovations for Poverty Action found that recipients of money used it toward better food, health care and their children's education. Some invested it in a small business or bought cows. The study found that getting money reduced stress levels among the poor.

I wonder why Americans are so stressed out about their bills. A thousand dollars can do so much to boost the quality of life for indigent people. But here in the land of opportunity, many people find it impossible to set aside 10 percent or more of their relatively generous incomes toward retirement.

Do you find this unfathomable?

***

Follow me on Twitter: BWhelehan.

Barbara Whelehan is a co-author of "Future Millionaires' Guidebook," an e-book by Bankrate editors and reporters. It is available at Amazon, Barnes & Noble, iBookstore and other e-book retailers.

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36 Comments
Lynn
October 30, 2013 at 8:58 am

I have to agree with Mike. I have 5 children, one in college, and one starting college in the fall. My husband works 70 hours a week with one day off. We live paycheck to paycheck. With 4 cars insured, food, mortgage, utilities, braces, gas and sports, there is no money left. Of course I cannot get a scholarship or grant because we make too much money. I think he should quit his job and let the government pay our bills.

Andy
October 30, 2013 at 8:51 am

The article says "we're talking about people who have or make decent money." What exactly is "decent money"? Do you mean people who make more than enough to pay their bills? Or people who can't even cover the cost of living and continually come up short every month? I'm not talking about people who are irresponsible with their money….I'm talking about average, everyday folks who try and struggle and pay taxes and STILL can't cover their basic expenses. We don't live in Kenya, where $1000 = a year's wages. Yeah, if someone handed me a year's wages in the USA (and I mean a DECENT year's wages, not poverty level wages, namely, minimum wage), then yes, I would be happy. I could pay off some bills, pay down the mortgage, afford the cost of groceries and pay the doctor bills. I find this article condescending and completely out of touch with reality. It sounds very Republican. And anyone who makes a blanket statement about how our nation expects the govt. to take care of them, gets handouts (really? I've never gotten a "handout"), has to have the newest car, TV, clothes, etc. is REALLY sticking their head in the sand and ignoring how the majority of us live. Why has there been such an explosion of thrift store openings in the last few years? Hmmm….maybe it's because so many more people have to and want to buy 2nd-hand to SAVE MONEY.

cin
October 30, 2013 at 8:49 am

This is the stark reality! I've always been on the very conservative side with regard to spending and lifestyle and am so glad I was/am. I can sleep soundly at night, provide for our son's education, live comfortably in a safe neighborhood, pay our bills, still save for retirement and have FUN! It's just getting increasingly difficult to stash money away for the "ifs" in life and our golden years. One really has to have self-restraint and willpower!

Tom Picciani
October 30, 2013 at 8:37 am

6 years ago I was $17k in debt with a year left on my $500/month car loan. The rate on my Citi card was too high so I took one of those many applications from the mail and got a lower intro rate. I committed $500/month to paying down the debt. A year later when the car was paid off, I committed $1000/month to getting out of debt. 3 years ago I had zero balance on my cards.

Once I did that I saved up $2000 and put it into a ROTH and began buying moderate dividend stocks like the telcos and other dividend paying stocks, etfs, and CEFs. Right now I'm all cash due to the market problems that might come. But I do have a nice pile of cash to add to my pension. I'm all set.

CB
October 30, 2013 at 8:22 am

I would consider myself right in the middle when it comes to the house hold salary. I have a family of 5 and have not received a raise since 2009. I have however managed to save 10% a year for approx. 15 years. It's extremely difficult to do this and I find one of the main reasons is due to health care costs. I pay approx. 400 per month for insurance. Now how can people really save with these expenses? That cost does not include the 2000 dollar deductible that has to be met before coverage is applied. I mean really how can the average young family think about 401K and retirement? I was lucky to start yearly and never stop so I don't really notice the money coming out of my check. The cost of health insurance was not as high when I first started investing. I can't even think what the retirement age will be in the future.

Dave
October 30, 2013 at 8:11 am

Some interesting rants here. However, our futures are largely in our own hands, we just choose not to do much with it. Bottom line anybody other than a new graduate (from high school or college) should be saving at least 10% of their salary towards retirement once they are on their feet. And as one hopefully moves up the ladder, gets promotions and raises, a higher percentage should be saved. Starting early is important and investing in tax advantaged or tax deferred accounts such as IRA's 401K's is key. Compounding interest does wonders for money especially if it is not taxed as it grows. The rants about bubbles are just that. Yeah we had a bubble burst in 2008. But had you invested in almost any stock fund back then, your money has nearly doubled or more. It is well above the pre-crash highs and many indexes are at all time-highs. And if one just left their money in stocks the whole time they are at least back to where they were before the crash. Avoiding the stock market is the worst decision people can make. But no. We live in a nation where everybody has to have the newest car, the newest flat screen TV, has to go on fancy vacations, need to wear the latest fashions. Who basically don't worry about tomorrow as they feel the government will take care of them. And we keep electing politicians who keep making these promises, who offer all forms of government hand outs and who won't be around when the government goes broke and cannot keep those promises (see Detroit). So the key here is sacrifice a little now, invest in tax advantaged accounts and stop electing politicians who are fiscally irresponsible.

Mike
October 30, 2013 at 8:08 am

You give me a TAX FREE $1000.00 to use and let's see $600.00 a month for my out of poket health insurance policy because I am retired and under 65 so I have to pay for my health insuranc.
OK $1000-$600.00=$400.00 now property tax at ( what I have to save a month to have enough to pay it ) $130.00 ok $400.00- $130=$270 now electric bill $185 per month (average)now $270-$185=$85.00 ok Auto insurance $124.00( two cars) now $85-$124= I owe $35 dollars you want me to keep going??? my wife and I worked all our lives she got injured and was disabled. I was forced into early retirement. WE could live ok if the cost of just living was not sch a blatant theft of tax's and cost of gas ,heating oil, you want me to go on???? Get real people are working two jobs, couples are both working to feed and raise kids send them to school. What planet are you from people now and ypounger people just trying to find work, wages at a standstill while cost of just living doubles. time for you to take a reality check there my lady.

Randall
October 30, 2013 at 7:25 am

People can't save because, who really trusts the banks and politicians? Costs outweigh income, plain and simple,

robert
October 30, 2013 at 7:22 am

The cost of living in the third world is also a lot cheaper so a year's salary goes a long way. If most people got a year's salary handed it to them I'm sure they would invest some of it. It is all relative. This article isn't well thought out.

mark
October 30, 2013 at 6:16 am

Barbara Whelehan is certainly out of touch with reality. I have no faith in bloggers from bank rate, bank this, bank that. They are all fools since they didn't foresee any of the bubbles happening. They may even have been involved in the theft created by banking institutions. Let's face it, all we have to do is look to see who didn't get seriously hurt when all the bubbles burst. Banks only were hurt when they found thieves in there midst. Then they were bailed out at our expense. Congress destroyed Social Security by borrowing from it with no ability to pay back. All money institutions are nothing but junkies looking for the next fix, never getting enough. Ms. Whelehan is correct when she portrays every day Americans as people with their heads in the sand. A sad sight indeed. Financing and the Stock Market are only mysterious if one doesn't LEARN to understand them. Anyone can learn. If I could do it anyone can. I saved certain members of my family from terrible damage in those disgusting bubbles simply by paying attention and observing; and of course LEARNING. Don't even get me started on the un-repenting, undeserving obscenely rich CEO's who don't give back and help rebuild what they take away. America, we get used because of our ignorance.