Money And Change

Nearly 25% of Americans are going into debt trying to pay for necessities like food
Published Fri, May 24 2019 9:00 AM EDT
Cnbc.com       Megan Leonhardt@Megan_Leonhardt
 
American have an average of $6,506 in credit card debt, according to a new Experian report out this week. But which expenses are adding to that balance the most?

A full 23% of Americans say that paying for basic necessities such as rent, utilities and food contributes the most to their credit card debt, according to a new survey of approximately 2,200 U.S. adults that CNBC Make It performed in conjunction with Morning Consult. Another 12% say medical bills are the biggest portion of their debt.

That makes sense, given that day-to-day costs continue to soar. Middle class life is now 30% more expensive than it was 20 years ago. The cost of things such as college, housing and child care has risen precipitously: Tuition at public universities doubled between 1996 and 2016 and housing prices in popular cities have quadrupled, Alissa Quart, author and executive director of the Economic Hardship Reporting Project, tells CNBC Make It.

It’s now common to be just scraping by. A majority of Americans have less than $1,000 in savings and more than 70% of U.S. adults say they’d be in a difficult situation if their paycheck was delayed by a week, according to a survey of over 30,000 adults conducted by the American Payroll Association released in September.

Most debt is derived from spending on extras

Basic necessities and healthcare costs may be sending some people into debt, but more people point to spending on non-essential items like clothing and entertainment as the main culprit. In CNBC Make It’s survey, 32% of people said their discretionary spending was the No. 1 cause of their current credit card debt.

Another 9% say the majority of their debt comes from paying for travel. Americans spend an average of $483 a month on non-essentials such as dining out, entertainment, luxury items and vacations, Schwab’s 2019 Modern Wealth report found.
 
Why it’s important to keep balances low

No matter what you’re spending on, it can be more expensive than ever to let that monthly balance roll over. That’s because the average credit card APR has never been higher: Rates are currently sitting at 17.73%, according to CreditCards.com. Because of that, the interest accrued on monthly balances can quickly add up.

Let’s say you have the average credit card balance of $6,354. If your card charges the average APR and you pay the minimum each month (3%, which is roughly $190 to start) you’d stay in debt for over 17 years and put more than $5,800 toward interest.

How to reduce your debt

If you already carry a balance and are looking to pay it down, it may be worth considering opening a new credit card that allows you to transfer over your balance without accruing more interest.
The key is to look for one that doesn’t charge you a balance transfer fee and offers an extended 0% APR period. Ordinarily, cards that allow balance transfers can charge a fee of 3% to 5% to move your balance from one card to another, which can add up.

A good option may be a credit card like the Amex Everyday, which offers a 0% APR on balance transfers for 15 months and no transfer fees.

You also may want to trim your expenses or pick up some part-time work. “There are only three things you can do if you are not happy with your financial situation: Make more, spend less or a combination of the two,” Saundra Davis, a financial coach and adjunct professor at Golden State University, tells CNBC Make It. “There is no other magic.”

There are only three things you can do if you are not happy with your financial situation: Make more, spend less or a combination of the two. There is no other magic.

Saundra Davis  financial coach and adjunct professor

If you do want to reduce your spending, the first step is to get organized about what you purchase, Davis says. Be really clear with yourself about what you want and what’s achievable. And be realistic, she says. Don’t expect yourself to go immediately from saving nothing to putting away $400 a month.

Start small. Save $5 and actually put it into savings, or cook dinner once a week and take the money you would’ve spent going out and deposit it.

Davis uses her daily coffee habit as a starting point. She doesn’t give up her coffee, but instead only buys it at her local coffee shop if she can afford to save that amount as well. For example, if Davis pays $3.50 for coffee, then she matches that by putting $3.50 in a savings account too.
“If I can’t afford $7, I don’t have any business being in there,” Davis says. “If I can give $3.50 to [my coffee shop], why can’t I give $3.50 to myself?”

You can do this with a number of other frequent purchases as well, such as dining out or treating yourself to a movie. “It truly is about changing your mindset and then creating different habits,” Davis says.

Social Security Will Cross Another Dangerous Milestone Next Year
ZeroHedge.com      Wed, 05/01/2019 - 16:45  
Authored by Simon Black via SovereignMan.com,

In the year 1890, according to census records, my great-great-grandfather was spending the final years of his life living with one of his children on a farm in Choctaw County, Oklahoma.

I’ve spent most of the last twenty years doing some hardcore research into my family history– and I’ve identified records going all the way back to 1250 in England.
And one common theme that I’ve noticed: when people reached a certain age, they almost invariably moved in with their kids and grandkids.

This is what ‘retirement’ used to mean; it was simply expected that younger generations would look after older generations. And back then, since households were quite large, there were usually 4-6 other people in the home to look after great-great-grandpa.

This arrangement might sound quaint and outdated. But it’s still the fundamental premise behind many retirement plans, including Social Security in the Land of the Free.
It’s still the younger generations taking care of the older generations. That’s the way the system functions: younger people pay taxes to fund benefits for older people who have retired.

So you can see the similarities:

Hundreds of years ago it would be your kids doing the work to take care of you in retirement. Today it’s everyone’s kids, collectively, doing the work to take care of every retiree.
Hundreds of years ago it took several other people in a household to care for the elderly. Today it takes a certain number of workers paying into the system to support each retiree receiving benefits.

They call this the ‘worker-to-retiree ratio’.

And the Social Security Administration (SSA) has said that they need a MINIMUM of 2.8 workers paying into the system for every one retiree collecting benefits.

You can probably see that maintaining this delicate balance requires steady population growth; every generation has to be large enough to support the previous generation.
If population growth trends get too far out of whack, it means there will either be too few workers, or too many retirees…

And that’s exactly what’s happening now: people are simply having fewer children.
In the Land of the Free, birth rates are the lowest levels EVER since they started keeping records decades ago.

And this has been a long-term problem: fertility rates were already in decline when the 2008 financial crisis accelerated the trend.

Researchers estimate that 4.8 million babies were never born as a result of the Great Recession.
Some of the reasons are pretty obvious– kids are expensive. And they aren’t getting any cheaper.
You used to be able to raise a family on a single income. Today, the average household can afford one, maybe two kids. And that’s with both parents working.

Unsurprisingly, as the fertility rate has fallen over the years, so has Social Security’s worker-to-retiree ratio.

It’s already dangerously low.

And next year there will be just 2.7 workers paying into Social Security for each retiree - below the minimum necessary to sustain the program. After that it will keep falling.
In 2034, when Social Security estimates its trust funds will run out of money, there will only be 2.3 workers per retiree.

And just to pile it on, technological automation is poised to radically change the workforce.
In 10-15 years, you’ll see entire professions replaced by robots and AI… neither of which pays into the Social Security system.

It’s not just the US that’s grappling with this either.

Finland’s fertility rate is below the US rate. They based their healthcare system on the same faulty assumption, that the population will continue to grow.

Yet now there aren’t enough young people paying into the system to support the older people who use more healthcare.

Most of Europe is even worse off. The combined EU fertility rate is just 1.59 babies over the course of a woman’s lifetime, well below replacement levels.

Japan is far more restrictive on immigration compared to the US and EU, and is on the cutting edge of automation. Japan’s fertility rate is just 1.4 and it has one of the oldest populations in the world.
The one-child policy that China had in place for decades is already putting a strain on the burgeoning middle class. By 2050, 44% of the population is expected to be dependent elderly.
We talk about this issue so much because it’s important to recognize that monumental change is coming. The entire way retirement is structured, since long before Social Security, is coming to an end.

You can’t rely on the next generation for retirement anymore. To be secure, you have to take matters into your own hands.

If you’re retired now, or are about to retire, you might be fine. You can probably ride it out before the entire system has to reset.

But if you’re 50 or younger, Social Security will run out of money before you’re able to start collecting.

The younger you are, the surer you can be that these retirement systems won’t be available to you. But that also means you have time to do something about it.

Several countries have options for self-directed retirement accounts. In the US, a solo-401(k) is a great option for anyone with side or self-employment income. And in addition to the flexibility and freedom you have to invest with a solo-401(k), you get to contribute money before it’s taxed.

That’s important, because unfortunately, you are still going to be expected to pay into Social Security, even though you might never collect it.

And as the politicians try desperately to save these programs, you can expect to pay higher taxes.
Any money you can save on taxes and funnel into your private retirement account will be compounded year after year instead of flushed down the toilet.
And there is absolutely no downside in doing this. Worst case scenario: Social Security is miraculously saved, and you have extra money for your retirement. Not exactly a bad outcome.