Back in May, The Atlantic magazine published a long cover story The Secret Shame of Middle-Class Americans. Relating to a Federal Reserve survey in which 47% of the respondents purportedly said if they had a $400 emergency they would have to cover it by borrowing or selling something*, the author Neal Gabler confessed that he too was one of the 47%.
That 47% number is shockingly high for a mere $400 emergency. The more shocking part is that the author isn’t a random person making a below-median income. There’s an entry on him in Wikipedia. According to that Wikipedia entry, Neal Gabler wrote five books, won numerous awards, and he’s currently teaching in a Master’s of Fine Art program at the State University of New York. The implication is that a large part of our population are in a poor shape financially, including someone as accomplished as Neal Gabler. He termed it “financial impotence.”
Financially responsible people pointed out the author only did it to himself by buying an expensive home in an exclusive neighborhood and sending his two daughters to private schools, and private universities (Stanford, Emory, Harvard Medical School). Liberal Helaine Olen accused him as one of the “sad, broke, literary men” conflating privilege with true middle class challenges. Conservative Megan McArdle accused him of keeping up with the Jones on a larger scale.
I like how Neal Gabler defended his life choices, unshaken by others’ disapproval. One person’s passion and preferences can be seen as a waste by another. Neal Gabler wrote in the article:
“I chose to become a writer, which is a financially perilous profession, rather than do something more lucrative. I chose to live in New York rather than in a place with a lower cost of living. I chose to have two children. I chose to write long books that required years of work, even though my advances would be stretched to the breaking point and, it turned out, beyond. We all make those sorts of choices, and they obviously affect, even determine, our bottom line. But, without getting too metaphysical about it, these are the choices that define who we are. We don’t make them with our financial well-being in mind, though maybe we should. We make them with our lives in mind. The alternative is to be another person.”
Those are all conscious choices. Paying for his daughters’ private school and private university education was apparently very important to him. He spent his money on his own priorities. Who says it must be better if he went to law school, made $330k a year, and retired at 33 to travel the world on a $24,000/year budget (“Want To Retire In Your 30s And Travel The World? This Woman Did It” Forbes) than becoming a writer, having five books under his name, having been recognized by multiple awards and a Wikipedia entry, raising two daughters with top-tier education, teaching MFA students, but having to borrow $400 sometimes?
By some standards Neal Gabler and his wife actually retired very early. His wife quit her job to be with their children and never worked again. He retired from his TV job and pursued his passion in writing books. He chose his own book subjects and he set his own schedule. Teaching part-time in the MFA program is only giving back to his community. Only Internet Retirement Police would say he hasn’t been retired all along.
You can choose to waste your money now or waste your money later, on educating your children or on traveling the world. One choice isn’t necessarily superior to the other. It just has to be your choice. When others make a different choice, it isn’t wrong when it’s their choice.
I think savers and spenders should learn to appreciate the other way of life a little more. If you read this blog you are likely a saver. Spend a little more than you usually do on some nice experience and see what it’s like when you don’t always go for the most value-conscious option. Don’t be so afraid of the so-called hedonic treadmill or lifestyle creep. You are already a saver. You won’t be so easily corrupted.
Personally I find it quite liberating when cost is removed as a factor from consideration. I get to focus on what I like the most. If it happens to be more expensive, so be it.
***
As a side note, as usual, what gets reported in the media isn’t exactly what people actually said in the survey, which also isn’t necessarily the true reality when push comes to shove. In the Report on the Economic Well-Being of U.S. Households in 2015 from the Federal Reserve, the actual survey question was:
“Suppose that you have an emergency expense that costs $400. Based on your current financial situation, how would you pay for this expense?”
It only asked what people would do, not what people could do. Many people have money in the bank but still choose to cover an unexpected expense by borrowing or selling something. They can cover it with savings but they want to reserve that money for a larger, true emergency such as a job loss. They don’t want to touch it for a $400 expense, which makes sense to me. In the same survey, 47% of respondents said they had an emergency fund large enough to cover three months of expenses.
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Clint says
Harry, I’ll bet that people who would pay for a $400 emergency using a credit card got classified as “borrowing”.
Harry Sit says
Only if they answered “put it on my credit card and pay it off over time.” If they answered “put it on my credit card and pay it off in full at the next statement” or “with the money currently in my checking/savings account or with cash” they are classified as covering it with “cash or its functional equivalent.”
William Jordan says
Harry:
Framing the question differently and putting it in context limits the solution. “Woulda Coulda
Shoulda” can be parsed to oblivion. The question of consequence is “Can” you ante up 400
fishnagles to pay for the sudden event. The story line continues at dinner with friends or family.
Like the Gov’t, it is never focused and for the most part unreliable.
Jess says
Harry, I’ve been reading your blog for some time and I truly enjoy it. So thank you. I’m not the type to leave comments, but I want to congratulate you on this post. It’s extremely intelligent and sensitive — indeed quite wise in my opinion. I’m a professor and a neuroscientist (also a writer with a consulting company on the side – but those things came later as an offshoot of my science; they just sort of “happened”). I love my job and I can’t imagine ever retiring. That’s because I spent many years building myself into who I wanted to be, enduring years and years of education rather than taking well-paying jobs. Along the way, I didn’t save much (it’s too bad I didn’t find this and similar blogs sooner!). I was entirely focused on the quality of my science, on learning to write and think well, and on teaching. Money wasn’t in the equation because I was in that wonderful flow state of just being who I was, becoming who I wanted to become, and getting better at doing the things I loved. I’m saving a lot more now, and so can Neal. He’ll write another book, because that’s what he loves. His kids are grown (and blessed by excellent educations, thanks to a devoted parent), so maybe he’ll invest any new money he makes wisely and catch up. Maybe he’ll never want to retire because he’s already doing what he loves. He’s such an impressive man, and I hate that he has been shamed for his choices. I think it’s interesting for people to answer this question: Would you rather be highly regarded and well known for mastering the skill you love, even if the money isn’t great, or would you rather focus on money, become financially secure early, but never focus on the higher goals that satiate you, make you your best self, and maybe even benefit the world in the process? In your case, I think you’re doing both! But many of the people posting on these blogs seem so focused on money that I worry they’re not listening to some of these deeper voices – the ones we all have, that tell us what would really make us happy, what we really want to learn and master, what we could be passionate about. For me, I’d rather be Neal than someone who made a bunch of money in a job I hated in order to to retire early. To each his or her own, but it’s a question I think deserves contemplation. For me, I’d rather master a skill I love and use it for a lifetime. In my experience, passion first; then the money follows.
Older and Wiser says
Well said. Here’s where I think we run into trouble as a society (I hope you will forgive the political bent here).
* Our politicians expertly create an us v them mindset where they incite the financial have nots to take offense at the financial haves. (Our Board structure for public companies and typical Executive Comp schemes contributes fodder in an alarming amount, admittedly.)
* The financial haves get defensive, particularly at those who don’t do a thing to set themselves up for retirement. Resentment on both sides lingers and over time increases.
* Politicians stoke the flames to raise taxes “on the rich!”, with a sleight of hand normally seen only in 3-card Monte tables whereby they take the financial have nots’ eyes off the fact that the pols are merely stuffing their own coffers.
My perspective is simple – we live in a land of free choice and those who choose less lucrative careers should have unfettered freedom to do so. Where I draw the line is when I make my choice to sacrifice family time, hobby time, etc to earn more and retire earlier I am then asked to ‘contribute my fair share’ in ever increasing amounts based on a tax-the-rich approach. It’s not fair for me to denigrate another’s choice but it’s likewise not fair for them to make that choice and then have me pay a portion of my own attainment to fund the gap in theirs.
Doctor-In-Debt says
Jess,
I have to agree with you 100%. I would rather live an accomplished life with a compelling career vs trying to save and retire as soon as I can. I know that I am happier when I am running on all cylinders at work and allowing an adequate amount of time for a recharge and time with family.
I find that many people who are searching for early retirement are early in their careers and are trying to “follow their passion”. They have not had the time develop their skills to the point that they can enjoy being proficient and are disenfranchised with their careers. Others are trapped in jobs that do not allow proper life balance and are noticeably happier when they find that balance. Many of my fellow physicians are in this second group.
Judging lifetime success simply through one’s checkbook and retirement age is a simple measuring stick but underpowered for our complex lives.
J Weinberg says
Great post. I agree that we should each be our own person and live according to our own values, and honor those who live nobly according to values that are not our own. The trouble comes when the person whose life choices caused him to be poor decides he has a right to force someone else to bail him out.
louis c says
I assume you are referring to the executives of Goldman Sachs and other firms who made the “life choice” of making such huge bets with one counterparty, that they “forced” the taxpayers to “bail out” AIG and keep it solvent to pay off those bets in full, instead of living with the consequences. For more, see my comment below.
Eric says
I understand this blog as a poke to people to be a little more tolerant of others and perhaps of themselves. In that vein I agree whole-heartedly. Personally, I am fine with people living their lives as they see fit, so long as their choices do not cause others grief.
The Atlantic article author unfortunately prefers to walk around with a bag on his head, and that is not simply a response to social intolerance He regrets some of his choices deeply and now gets to live with them for a long time. Perhaps the rest of his life.
After I read this article a few months ago I went to work and looked at my Ivy league trained colleagues a little differently. I wondered how their parents were faring.
Mark Zoril says
Refreshing take on this, Harry.
TJ says
All good points. Have you recently felt the need to give yourself permission to spend some more money? I feel like that has been a recent theme on this blog. Totally agree with you though and that’s one reason while I travel while young and single…growing up, we did a lot of cruises and you’d see the elderly struggle to move around. etc I’d rather sit at home and watch spots on TV when I’m old than sit at home all the time now so that I have more money later.
Harry Sit says
TJ – No, I always have the freedom. Only recently I see a flood of flawed, one-way narrative in the media, in reality show fashion:
– a guy paid off his mortgage in three years by staying in the basement and renting out the main parts of the home;
– a 33-year-old lawyer retired to travel the world;
– a 26-year-old couple moving from park to park working as camp hosts;
– a 35-year-old couple quit and became Airbnb hosts.
These are all great when they are personal, conscious choices. It doesn’t mean other choices are by definition inferior. The media stirs a very unhealthy attitude toward work.
TJ says
Fair enough! Especially considering all these folks in the media, you guessed it, are working….
Jess says
TJ,
I think you hit the nail on the head. It’s so easy to feel guilty for splurging once in awhile, or not riding my bike to work (I’ve been reading too much MMM!), or whatever. The guilt is a terrible thing, not to mention horrific for your brain when chronic. So, after reading these blogs and taking what I need from them (which is a LOT, and I thank Harry and MMM primarily), I’ve decided that moderation is the key! I’ve back off from saving 65% of my income and I’m back down to 35-40%. I’m more or less caught up to where I should be thanks to the advice on these blogs and from the Bogleheads. But now, I agree with you. I want to travel and live it up (a little!) while I’m still young (well, 42!).
Harry Sit says
Jess – I don’t know how MMM and I got into the same sentence. Pin me on the Antimustachian Wall of Shame!
Older and Wiser says
You seem to have a well-balanced, healthy perspective. And at such a young age! ; ) I am generally one of the happiest people I know but it took me well past 42 to identify the dangers of feeling guilty too often.
The good news is 42 is still pretty young and you have, likely, more than half of your life left to benefit from said perspective. Enjoy!
Jone says
Another +1 for this post. I too have recently felt the need to loosen the purse strings a bit. I’m a natural saver to the point where even my emergency funds have cash reserves. Yet, just this month I purchased someone else a plane ticket, gave my still working lawnmower away to a needy neighbor (and bought myself a new one), and purchased a new bike for myself. The sum of these three purchases was about $1,200 and none of these were pre-planned expenses or true emergencies. I don’t feel any “guilt” about any of them.
The plane ticket was a gift. My son needed to visit his grandmother (my ex-mother in law) in another state. He paid his own way there using his own emergency funds but couldn’t quite make it back under his own power without resorting to a credit card. He’s young but he’s headed in the right direction. By taking care of his return flight he can stay out of debt and rebuild his own savings. This is, I think, a good way to pay it forward to both my son and to my (hopefully) my grandson/daughter (someday!).
I never really liked my old lawn mower. I bought it used 10 years ago and have become tired of looking at it and waiting for it to die. It’s been a very good mower, I just never really liked mixing the oil and gas as it required. Now, I can feel good about helping my neighbor and I now have a new mower that I can just pour regular gas into.
I also replaced a very well worn 1980’s era mountain bike with a mid-range REI all-rounder/road bike (REI Randonee). This is my first band new bicycle since I was in my early teens which was roughly 4 decades ago. Interestingly, I had almost convinced myself to buy this same bike a few weeks ago. I didn’t do it then mostly because I didn’t want to drive the two hours to the nearest REI store to pick it up. Last weekend it went on sale at a 35% discount from the original price and my nearest REI had one in my size still in stock. I drove down, rode it around the parking lot a few times and bought it. Two days commute later (~25 total miles)…..Feels great!
As the article contends, these were all MY choices. I was very conscious of each purchase and made each deliberately. The cost of each choice really didn’t matter because the benefit, in my opinion, in each case was greater. Knowing that the cost didn’t matter allows a sense of freedom to say “yes” or “no” to each purchase without respect to the dollars required to execute.
TFB fan says
Another excellent, thought-provoking post, Harry. I wish I think the way you do.
louis c says
Another great, thought provoking post by TFB. But I was a little confused by some of the comments. I went back and re-read the post, and I also read the originally cited article. (There was one relatively benign reference to Donald Trump in the original article, so maybe that has some folks feeling defensive.)
I don’t see anyone anywhere advocating for bailouts, or class warfare, or anything like that. In fact, I see the themes of financial and personal responsibility, free will, making tough choices.
But let’s go there…if I am a billionaire (or claim to be but who really knows because I won’t release my tax returns)and I borrow a bunch of money and build a casino, and the way that I run the casino doesn’t make enough profits to repay the money I borrowed, I just default on the loans and walk away. But what if I am a recent college graduate who took out student loans, and my income is not sufficient to repay those loans. Even if I declare bankruptcy, my credit card debt might be discharged, but student loans almost never do. Oh, if I am really clever like the guys on Wall Street, I will take a cash advance from my credit cards, pay off my student loans, and THEN declare bankruptcy. Nope, they already thought of that. The bankruptcy court will still consider that debt as a student loan even though it was put on my credit card.
Here’s another example of the rigged system. The 401K is a great tax break for retirement savings. I appreciate it, and take advantage of it. Why do I only get to put in 18,000 a year? and why do I pay ordinary income tax when the money comes out? Income tax on the contributions, sure because I never paid those taxes, but the earnings should be taxed as capital gains. So why do hedge fund managers get to put UNLIMITED amounts of their income into carried interest? and why do they pay the much lower capital gains tax rate on both the earnings and the contributions? These are rhetorical questions. We all know exactly why.
Please, if you are rich, congratulations, but stop pretending that you are so persecuted.
Harry Sit says
louis c – Paying ordinary income tax on traditional 401k earnings makes it equivalent to a Roth 401k, in which earnings are tax free. Due to how tax brackets work, paying tax on the earnings actually makes those earnings better than tax free.
People who made bad choices, including both Wall Street types and ordinary folks, have a tendency to offload the consequences onto the society. I guess the other readers were just warning against that. I agree the protagonist in question didn’t do that at all.
louis c says
Who says that a 401K and a Roth 401K have to be equivalent? Just let me defer the income tax on my 401K contributions, and I will pay capital gains (which are generally lower) on the earnings when I take it out. I will compare this to the Roth option, and decide which is better for me.
I don’t understand how paying taxes is better than tax free, unless it reduces your taxes somewhere else.
Lastly, maybe it is human nature to WANT a bailout when you suffer some misfortune, but the rich and powerful seem to be a lot better at GETTING bailed out, at least in America. So if someone wants to warn me, I think they should warn me about the growing income inequality, and how those with the most income purchase the political power to protect their interests. I do not need a warning about things that are not happening, like being asked to pay for someone else’s retirement.
I appreciate your blog. I hope I am not being out of line with these comments.
Harry Sit says
louis c – I said. Paying ordinary income tax on earnings is already better than a Roth 401k. Paying capital gains rate will make it too obviously better. People won’t need to come read my article on Roth 401k then. 🙂
I’m in favor of taxing everything as income, no more special treatment on capital gains. That will solve the carried interest problem at its root, but many people, possibly including yourself, defend capital gains and volunteer as human shield for the rich.
Anyway, we are getting off track here. I don’t think readers of this blog have anything to do with carried interest or AIG bailout. No need to lay it at them.
louis c says
I agree that all income should be taxed the same way. BUT, as long as we still have a capital gains rate which is lower, I obviously want to pay that instead. By the time I retire, the vast majority of funds in my 401k will be earnings (and earnings on earnings YEAH!).
Full disclosure, I don’t technically have a 401k. I have the TSP, plus a small backdoor Roth IRA.
sphinx says
The things that struck me about this article were how it’s actually an indicator of the complete lack of support and safety nets for the middle and lower income class families.
The reason I think this is:
– Child care and schools. Those are huge expenses as anyone sending kids to daycare/preschool/private school knows. It’s also something that cuts into prime earnings and savings years. Even covering gaps between schools and office hours can eat a chunk out of a family’s budget. Often most families do come the conclusion that it is cheaper for one to stay home vs having to pay for child care. If good public schools were easily accessible families wouldn’t have to make the choice between paying for houses in good neighborhoods vs private schools and living bad neighborhoods.
– The overall lack of a safety net. This really boils down to one statement “But, like many Americans, I wanted my children to keep up with the Joneses’ children, because I knew how easily my girls could be marginalized in a society where nearly all the rewards go to a small, well-educated elite.” There is a real fear in American middle class families today which is that if you don’t do everything possible your children will slide out of it into poverty. This leads to every one wanting the best for their kids at every level which directly leads to point 1.
Maybe if we didn’t all feel like we had to risk our future for our children’s we wouldn’t be badly off.
J Weinberg says
To clarify, I’m personally against all bailouts – the executives at AIG, the dude who borrows $250,000 to get an unmarketable degree, the guy who wastes all of his disposable income on lottery tickets, the guy who retires at age 33, whatever. I don’t begrudge people’s choosing to take those risky bets, because surely we all take risks in some aspects of our lives. I only begrudge their trying to get bailouts from those who played it safer and worked harder. Rich or poor, I don’t discriminate. With risk comes reward sometimes. Other times it comes with epic failure. That’s the way risk works. Those who can’t stomach the consequences of failure shouldn’t take risks. So yeah, I’m not holding a candle for Goldman Sachs, and I’m not responsible for the AIG bailout or the preferential tax treatment of carried interest. K?
Physician on FIRE says
I’m a saver, not a spender, and talk about early retirement.
I try to stop short of telling people what they should do, unless they specifically ask. Otherwise, I lay out “Here’s what I’m thinking and here’s what I’m doing.” If you like it, great! You might learn something. But do what works for you.
Too often, people fail to realize that their choices are indeed choices. “You Have to send kids to public schools in this city.” Well, not necessarily, and it’s a choice to live in that city. And on and on.
Best,
-PoF