Saturday, May 4, 2013

Let's Talk About Money

 

 
Back in college I wrote one of my English papers on what is now known as the middle class squeeze. It has always fascinated me to compare how different people live such different financial lives and oftentimes we all have such different journeys; in making money, investing money, spending money and enjoying money.
 
My first interest was as a young child. My mom was an internal auditor, and bookeeper for over sixteen years before changing careers to take care of the aged and those that suffer from mind altering illnesses such as altzheimers. She was a single mom from the time I was eight, and so she openly would discuss money with my younger sister and I. She showed work ethic, and also is extremely frugal and taught me the art of streching a dollar.
 
I grew up in an idyllic English village, and had many friends. One of which had parent's who were getting ready to sell their home for over three quarters of a million, to retire in France. One would assume from the outset that they must make a lot of money, however her dad would often talk of how they managed to get to this point with a mere salary of no more that thirty-six thousand pounds in his lifetime. His wife, also didn't ever work. Instead she stayed home, to raise four children and to oversee projects. So how did they get there? Well, my friends mom cooked a lot. Her own breads, pastries, and they would also entertain their friends who would oftentimes bring a side dish, or a bottle of wine. They also found ways to buy rental properties. And now, although retired they own a home in France that has a Gite {rental home} that brings in a liveable income, so they don't have to tap into savings for many more years.
 
Anyways, as I travelled to America at nineteen to come to college, I got to experience a cultural difference between the amount earnt, the amount spent and also noticed that a lot of American's were either too tired, or too busy. Obviously, other Western European countries are this way also. I think the biggest difference in culture is how we interact with each other. In Europe, if you visit your friends, you oftentimes stay through the night chatting, talking, eating until either you invite them to stay for the night, or they have to go to bed. Whereas here, after dessert your guests have left and you're watching re-runs on DVR...and you know they are too because they tweeted it. Maybe we are spending money on conveniences because we're too busy, or too tired to do otherwise?
 
Or, is it a sign of the times. If you've read Elizabeth Warren's book 'The Two-Income Trap: Why Middle Class Parents are Going Broke' you'd be rivited. It discusses how the most un-financially well off, are women with children in the 21st century. Here's the book description:
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In this revolutionary exposé, Harvard Law School bankruptcy expert Elizabeth Warren and financial consultant Amelia Tyagi show that today's middle-class parents are increasingly trapped by financial meltdowns. Astonishingly, sending mothers to work has made families more vulnerable to financial disaster than ever before. Today's two-income family earns 75% more money than its single-income counterpart of a generation ago, but has 25% less discretionary income to cover living costs. This is "the rare financial book that sidesteps accusations of individual wastefulness to focus on institutional changes," raved the Boston Globe. Warren and Tyagi reveal how the ferocious bidding war for housing and education has silently engulfed America's suburbs, driving up the cost of keeping families in the middle class. The authors show why the usual remedies-child-support enforcement, subsidized daycare, and higher salaries for women-won't solve the problem. But as the Wall Street Journal observed, "The book is brimming with proposed solutions to the nail-biting anxiety that the middle class finds itself in: subsidized day care, school vouchers, new bank regulation, among other measures." From Senator Edward M. Kennedy to Dr. Phil to Bill Moyers, The Two-Income Trap has created a sensation among economists, politicians, and families-all those who care about America's middle-class crisis."

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It talks about how today's two-income families earns more than a generation ago, but has less money to cover living costs. A result of womens liberation? Or have we re-conditioned ourselves on what's a need or want? Also, what are we teaching our children? Because afterall, we are the role models for the next generation.
 
 
 
I found this piece by Sandy Smith, really intersting. She compares the cost of living and income's earned today compared to the 1950's.
 
"The 1950s were a time of great prosperity and economic growth in the United States. Today, looking at the decade objectively, we realize it wasn’t quite the post-war utopia portrayed in the media of the day or the nostalgic recreations since. Nonetheless, many look back fondly on what they view as a simpler time. One thing a lot of folks envy from that time is the cost of living. Everything in 2011 seems so much more expensive. Of course, no one in today’s world expects to pay 18 cents for a gallon of gas, $25 for a man’s suit, or $1,500 for a brand new car[1]. Still, paychecks just don’t seem to go as far now as they did then. Or do they?
 

Many Factors to Consider

When you compare the cost of living in the 1950s with today’s cost of living, you have to consider a variety of factors. For example, some things are actually cheaper to produce now than they were in the 1950s. Of course, most of today’s goods and services come with higher price tag, but people also get paid proportionately more.
 

Household Income Then and Now

In 1955, the median household income in the U.S. was around $5,000[2]. That means half of all households earned more than $5,000, while half brought in less. Adjusted for inflation, that translates to around $25,000 today. However, today’s median household income is just over $40,000. We’re not really making that much more money though. That $15,000 difference can be attributed, in large part, to the increase in the number of two-income households since the middle of the twentieth century [3]. The big difference between expenses then and now is the amount of stuff we buy. We also tend to live in much bigger houses.
 

Average Home Size 1950 vs. Today

The average size of a new house in 1950 was 983 square feet. In 2004 it stood at 2,349 square feet [4]. At the same time, family size went from about 3.5 persons per household, to around 2.5 today [5]. A bigger house incurs more costs, even with fewer people living there.
 

Consumerism

We also buy more things to put into our homes today. Comedian George Carlin once described houses as “a place to keep your stuff while you go out and get more stuff.” TVs, computers, mobile devices, game systems, microwave ovens, and gadgets of all sorts fill a typical 21st century dwelling. In the 1950s, a family had a television, a few radios perhaps, and the most basic of household appliances and furniture. Today, many houses–certainly most new ones– have central air conditioning. This was unheard of in the 1950s, even in warmer climates.
There were fewer cars as well. By the end of the 1950s, less than 3% of households owned three or more vehicles. In 2009, it was almost 20% [6]. More cars mean more car-related expenditures–from routine maintenance and fuel to major repairs and insurance premiums.
 

A Dollar Then, a Dollar Now

So, we’re buying a lot more stuff with roughly the same amount of money, meaning consumption is taking up a bigger portion of household budgets. But do the items we purchase cost more today? The Bureau of Labor Statistics website has a fun little online gadget that allows you to convert dollar amounts from one year into those of another. For example, a loaf of bread in 1955 cost around 18 cents, which converts to about $1.50 today. Depending on the brand of bread you buy, that sounds about right. A new car in 1955 was about $1,500. Today, that same car will cost you $12,000. That may get you a pretty basic car, but remember that the 2011 model is much safer, gets better mileage, and has a lot more features.
 

TV Time

Of course, some items have come down in price; televisions for instance. In 1955, a new TV would set you back $250.00. That’s $2,100 now. For that kind of money, you could now buy a top-of-the-line TV. Even with $250 in today’s money, you could purchase a far nicer set than the one your grandparents used to watch I Love Lucy and Milton Berle. Then again, we’re buying a lot more of them. In fact, while the average household is 2.5 persons, it has 2.86 televisions [7]. Also, in the 1950s, programming was free. Today, most people have cable, or satellite, a monthly expenditure that easily runs over $50 a month. Add that to household expenses that people in mid-century America never dealt with, like Internet and mobile phone service.
 

Living Large

If you were to live like someone in the 1950s, you could live fairly comfortably. Indeed, by mid-twentieth century standards you’d be well-off, even with a modest income. However, living in a small house with one television, no cable or satellite service, one car, no air conditioning, and so on is seen as a low standard of living in 2011. You could certainly cut back some. Do you really need three high-definition TVs or a 3,000-square-foot house? You likely need a computer and Internet service, because that’s simply the way the world is now. Mobile phones are more of a necessity now as well. Have you looked for a pay phone lately?
 
Perhaps we need to assess what we really want from our standard of living, and adjust our expenditures accordingly. On average we are living better now than at any point in history, but the key to happiness may be in finding ways to make it more affordable."
 
 
It really is thought provoking. I could compare all day. But I hope I made my discussion light, about how we must be good examples to our children. Talk with them about finances, so they have an understaning. Also, finding ways to make do the 1950's way and possibly re-evaluate the stress that mom's are having with having to help provide for their two-income families. Do we look enough at whether some cultures, compared to others have maintained a financial happy balance, that leaves us less tired, less busy and more fulfilled to enjoy our lives. Ultimately, we can make decisions in our homes, are we making the best ones. I'll definitly keep the thought in my mind, hope it sparked on in yours.
 
 

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