Only 4 out of 10 Americans has enough in their savings to pay for an unexpected expense: Half of the country is living paycheck to paycheck with no retirement plans.
There is little motivation to save when your local bank is offering close to zero percent on your savings account. And most Americans simply do not invest in the stock market. When it comes to saving money it is crucial to get into the habit of putting funds away for unforeseen events and expenses. Life has a way of bringing on unexpected expenses. The transmission falls apart, an unexpected illness, or having the roof blown off during a storm. All of these cause short-term disruptions to your balance sheet. Contrary to what the media portrays, most Americans are horrible savers. In fact, only 4 out of 10 Americans have enough in their savings accounts to pay for an unexpected expense. So it should also come as no surprise that half this country is not adequately preparing for retirement and will be depend on Social Security as their main, and for many only source of income in old age. Why do Americans save so little?
Record 93 million Americans now not in the labor force: The non-working American recovery added 451,000 to the not in the labor force category in December alone.
The employment report came out today and what you would take as good news sent the market moving lower. Why? A large number of the jobs added were in retail and food services. The growth in low wage employment caused the overall wage level to dip. But what was more telling and what continues to be ignored by the press is that we now have nearly 93 million Americans in the “not in the labor force” category. In December alone this category surged by 451,000. The market turned sour on a variety of fronts but the labor force participation rate also took a tumble. The spin is that we have many people hitting retirement age and many are going into the sun with large nest eggs. But the reality is, most older Americans are relying on Social Security to keep them one step away from poverty. We just hit a new record for those not in the labor force.
The American Dream no longer involves owning a home: Record number of young living at home and rents increase while income falls.
Inflation is an insidious money grabber. When incomes are stagnant or falling, any tiny amount of inflation is tantamount to a wage a cut. The largest expense for Americans is housing payments. This can be in the form of rent paid to a landlord or mortgages paid to a bank. Either way, money is getting funneled out for shelter. While incomes have been stagnant, rents have been soaring and the number of households renting has surged thanks to banks crowding out regular families in the single family home market. Wall Street has been chasing yield and thanks to generous bailout policies, the American public is subsidizing this low rate environment on the backs of this debt fueled low wage recovery. Many Americans are now sour to the notion of owning a home. How many young adults lost their homes or saw their parents struggle to make the monthly mortgage payment? The mindless banter of “housing never goes down” is now lost on this current generation. What is interesting is that home values have gone up, rents have gone up, but the overall homeownership rate has fallen in line with incomes. And of course, rents are being jacked up while incomes flutter.
A leveraged system – US debt jumps $100 billion on last day of year. Total US debt markets at $58 trillion.
The New Year came and went and here we are fully into 2015. Most Americans didn’t realize this but on the last day of the year US debt jumped by $100 billion in one day driven largely by Social Security adjustments. The current economy is dangerously addicted to debt. There was a time not too long ago where paying for college or even a car with cash was seen as a common occurrence. That is no longer the case and we are even seeing subprime auto debt since many Americans are cash strapped and a little low on the income side. Total credit market debt is nearing $58 trillion which seems a bit excessive given this is three times annual GDP. The current system is highly addicted to debt in any form. Those with the ability to access debt and leverage it can thrive in this system so long as debt is accessible. For many Americans with stagnant wages debt is available but for products that largely create negatives for wealth accumulation – cars, TVs, etc. Many on Wall Street can leverage cheap debt to purchase goods in the economy and crowd out regular workers.
Standard American Retirement plan equates to flying by the seat of your pants: The majority of older Americans rely on Social Security as primary source of retirement income.
Social Security keeps half of elderly Americans out of poverty. You need to recall that many older Americans came of age during the 401k cult worship of Wall Street. Greed is good as portrayed in the movie Wall Street. Stories developed as a sign of caution actually drove many to aspire to become financial mavens that sought to make as much as possible even if it meant setting a torch to the underlying economy. Many made billions of dollars during the housing crisis betting on the failure of regular American families. As many baby boomers now find themselves looking over the retirement cliff, many realize that the annihilation of pensions in place of 401ks was not exactly the lost city of El Dorado. Most retired Americans rely on Social Security as their main source of income. This was never the intention of the system. Social Security was supposed to be one leg of a three part stool. You had pensions, 401ks or other retirement plans, and finally Social Security. Since most Americans have no savings and pensions are largely going extinct, many are now forced to rely on Social Security as their primary source of income. The only issue is that we now have a demographic tsunami of people entering old age and many are going to fly by the seat of their pants into retirement.
92.4 million Americans not in the labor force: The continuing trend of one-third of Americans supporting the other two-thirds.
92.4 million Americans are considered to be “not in the labor force” officially. This number is incredibly high and is a large factor for the drop in the employment participation rate. While many older Americans are winging it when it comes to retirement, one-third of the private workforce is supporting two-thirds of the population. Part of the reason we have so many Americans in the not in the labor force category is partly due to the aging of the country but that only accounts for one portion of the change. A large portion also comes from the unusual jumps in the disability category, a large number going back to high cost college, and many simply dropping out of the market completely. The rate of increase in each of these categories is growing much faster than the rate of growth in the population suggesting something else is going on. The unemployment rate on the surface looks to be much healthier than it is because you are removing millions of Americans from being counted.
Dollar Store Nation: Largest percentage of Americans on food stamps while stock market disconnects from working class Americans.
While the stock market whipsaws like a rollercoaster, many Americans only see one tiny benefit to their bottom line. The massive drop in oil prices will add a few extra dollars into the wallets of Americans just in time for the holiday shopping season. Many will only have the budget to shop at dollar stores which are doing fantastically well over the last decade. What happened over the last decade? The crash of the middle class. This is how mid-tier retail stores are having a tough time while places like Tiffany & Co. are doing great targeting the wealthy. The gap is growing and we now have the largest percentage of Americans on food stamps. A large part of the growth in the stock market is being driven by slashing wages, cutting benefits, and many Americans are simply winging it for retirement. The number of dollar stores across the United States is amazing and many are happy to accept food stamp debit cards.