The Tough Reality of Money for Many
Let’s get straight to it. Chances are, like many folks, you might feel you’re not great with money. Right now, credit card debt is at an all-time high in the US.
Here’s what some recent reports are showing:
- A new report indicates that two in five Americans actually find having credit card debt embarrassing.
- According to reporting by Tom Costello on growing economic uncertainty, a majority of Americans can’t handle a sudden $1,000 expense without needing to borrow money.
- Even among people earning $250,000 a year or more, one-third still live paycheck to paycheck.
- The average American is currently spending nearly $18,000 a year just on things that aren’t essential.
- A recent survey from Edward Jones shows that more Americans than ever before are seemingly “this close” to facing a financial disaster.
- It’s not just the US; it’s reported that the financial struggle is a similar story “everywhere around the world.”
- Money that people managed to save up during the pandemic period has now “evaporated,” with credit card debt often taking its place.
This situation leads to a question: is it a good thing only for the small group who are good with money? Or could our economy even handle everyone being financially responsible?
What Does “Financially Responsible” Even Mean?
When we talk about being financially responsible, or if you aim for it yourself, there are certain common goals or requirements usually mentioned in financial advice:
- You absolutely need an emergency fund.
- You need to have retirement savings.
- Most advice suggests paying for a car in cash.
- By the time you hit 30, you should ideally own a house with a 20% down payment already made.
The catch? These things often considered standard for financial responsibility are really expensive. A lot of people simply cannot afford to achieve them.
It’s easy to think that anyone struggling financially must be doing something “dumb.” But the reality is, for many Americans, no matter how careful they are or how much they try to save, they’ll struggle just to build an emergency fund, let alone hit all the other milestones that define someone as financially responsible.
The Mystery of Disappearing Pandemic Savings
Remember when people were saving more during the pandemic? There were a few reasons for that:
- Government stimulus money.
- Paused student loan payments.
- Generally, it was just harder to go out and spend money like usual.
People were actually saving with the hopes of becoming more financially secure. A survey in 2021 by Go Bankr Rates, a financial market data firm, polled 1,037 Americans and found:
- 44% said they were saving specifically for an emergency fund.
- 19% were saving for retirement.
- 13% were saving for a home (this was about half of the folks in the survey who didn’t already own a home).
Fast forward to 2023. According to a follow-up report by Bloomberg using data from the Fed, most of that money people were saving up with good intentions towards being financially responsible is gone. Totally gone.
The report found that only the top 20% of Americans still have any extra savings left.
Why Do People Make “Bad” Financial Choices?
With disheartening numbers like these, many people feel less likely to stick to the “slow and steady” path of financial responsibility. Instead, they might look for something that could change their life overnight. Think:
- Lotteries
- “Get-rich-quick” schemes
- Risky investments
Even though these have a low chance of success, many Americans feel like the slow and steady way has no chance of success for them anymore. This feeling can lead them to make those “financial mistakes.” People tried being financially responsible during a time that was actually great for saving money, and for most, those savings vanished just months later.
It’s also important to note that being poor is expensive. Areas with less wealth often don’t have big stores. This means people living there might have to drive an hour round trip just for groceries or rely on convenience stores that charge significantly more than larger retailers like Walmart, Trader Joe’s, or Costco. These “food deserts” are just one example of how systemic issues can keep people struggling financially.
So, there’s a mix of reasons for poor financial situations:
- Some people simply don’t have enough income left after paying for essentials to afford the increasingly expensive things needed to become financially responsible (like a down payment or building a big emergency fund).
- But yes, there are also plenty of people who do have the means but make decisions that aren’t wise. As the saying goes, “don’t be stupid. That’s your choice” (a line famously used by financial personality Dave Ramsey on his show when talking about choices).
The Complicated Question: Should We WANT Everyone to Be Financially Responsible?
Given all this, here’s a twist. There’s one big reason why you might not want everyone else to get their money sorted out, and three good reasons why you should want them to. Let’s explore if we can even afford for everyone to be financially responsible, and if we’d even want that outcome.
Reason You Might NOT Want Everyone Saving: Investing Competition
Here’s the big reason you might prefer others aren’t financially responsible: It could make achieving your own financial goals, especially through investing, harder.
If significantly more money suddenly floods into the stock market because everyone is saving and investing, it would likely push stock prices higher.
- This is great if you’ve already bought all the stocks you ever wanted to own.
- But it’s bad if you plan to invest consistently over many years, which is exactly what financially responsible people tend to do.
A higher stock price doesn’t change how well a company is actually doing (its fundamentals). So, if you’re a financially responsible investor looking for value, you’d actually prefer prices stay low so you can buy more shares for your money.
Think about Warren Buffett, a legendary investor known for finding undervalued companies. When his company, Berkshire Hathaway, buys a stock, he has to tell investors. When he announces a new purchase, the market often gets excited and drives the stock price up instantly. While this puts Buffett in a profitable spot right away on that purchase, he’s actually said in shareholder meetings that he hates when this happens. Why? Because it makes the stock more expensive if he wants to buy more shares of that company later on.
Now, you’re probably not Warren Buffett, but the principle is the same. If everyone suddenly became financially responsible and started buying the same shares you wanted for your long-term goals (like retirement), you’d end up paying more for the same set of investments. The only time you actually want a stock price to be high is when you are ready to sell your shares.
Right now, if a massive wave of people started saving and investing, the wealthiest people who already own a lot of assets (stocks, real estate, etc.) would benefit the most. They could sell their holdings at higher prices to all the newcomers entering the market.
This logic also applies to other big financially responsible purchases like buying a house. If tons of people stopped taking expensive vacations, eating fancy meals, and buying expensive cars to save diligently for a house, the demand would likely push housing prices up even further. This would make it harder for you to buy a house, thus making it harder for you to be financially responsible by hitting that goal.
Also, consider this: Investments like stocks and real estate have value partly because the underlying companies or properties produce things or services that people buy. If everyone decided their old iPhone was good enough and stopped upgrading, it would hurt Apple’s earnings (and you as an Apple shareholder).
So, it’s understandable why you might momentarily think that maybe it’s beneficial that many people make poor financial choices. It can feel easier to get ahead when others are struggling.
Reasons Why You SHOULD Want Everyone Saving (Better for Everyone!)
Despite the potential competition mentioned above, there are strong reasons why you should want more people to be financially responsible. These reasons actually benefit everyone, including you.
Reason 1: Beating the Subscription Trap
People are sometimes afraid of a future where they “will own nothing and be happy about it.” This idea relates to the rise of subscription services. People now pay monthly fees for everything from entertainment (streaming services) and applications (software) to cars, food, and even housing.
Why has this grown so much? Partly because people often lack the money or the discipline to save up and make a one-time, upfront purchase. Businesses have jumped on this, creating recurring revenue models. While convenient sometimes, paying a monthly fee for things often works out to be a much worse deal for the consumer over time compared to buying upfront.
Look at the numbers:
- According to the Subscription Economy Index report, the market for subscription services has grown by a massive 435% over the last decade.
- It’s expected to keep growing, reaching a market size of $1.5 trillion by 2025.
- The market research firm Forrester states the number one reason consumers like subscription services is exactly what you’d guess: they don’t have enough money to pay for things all at once anymore.
Now, subscription services aren’t inherently bad. They can be great for trying something out or for services where continuous updates are needed (like software). What is bad is when there’s no other option besides a subscription.
- Some things are now hard to buy outright. This very video, for example, was made using Adobe software, which can only be used via a subscription now, not a one-time purchase.
- Even if you want to buy a car, dealerships often make more money if they put you into a lease agreement rather than selling the car for cash. So, they’ve structured their business to push leases.
This shift happens because enough people sign up for these subscriptions, allowing businesses to change their models and sometimes completely stop offering upfront purchase options. If more people had savings for upfront purchases, businesses would have more incentive to offer those options.
Reason 2: Less Consumption, More for You and the Planet
Poor financial planning often goes hand-in-hand with overconsumption. Data from the EPA shows that the average American uses more than their own body weight in consumable products every single day.
Reckless spending fuels:
- Big cars
- Big houses
- Big meals
- Big convenience purchases
These have a financial cost, but also a significant environmental one. Even if you don’t personally prioritize environmental impact, this point still matters to you directly. If people buy less stuff overall and are more thoughtful about where their money goes, there’ll be more resources and goods left available in the collective pool. Less consumption also means we collectively pay less in environmental taxes or deal with fewer environmental cleanup costs down the line. This makes it easier for everyone, including you, to be financially responsible.
Reason 3: A Shift to Better Businesses
Some companies rely heavily on people spending money recklessly to stay afloat. Think industries like:
- Fast fashion
- Consumer lenders (like payday loans)
- Some automakers (pushing expensive leases)
- Debt collectors
- Some parts of the hotel industry, airlines, and restaurants (benefiting from impulsive spending)
These companies thrive when people spend their paycheck on non-essentials or take on unwise debt.
However, other essential industries wouldn’t be as negatively affected, such as:
- Groceries
- Healthcare
- Repair services
In fact, some companies would actually do better if people had more money saved up! Why? Because people would then be able to make larger, investment-type purchases that are expensive upfront but save or earn you money over time. Examples include:
- New homes
- Solar panels
- High-quality, durable clothing (instead of cheap fast fashion)
If you save money, you eventually spend it on something. And generally, making long-term, valuable purchases is better for society than buying easy, disposable consumables.
Furthermore, if more people are saving and spending responsibly with the goal of being financially secure, it means services like Social Security could potentially have more resources available to help those truly in need.
Bonus Reason 4: Less Work Overall
If people are spending less money on unnecessary “junk,” then as a society, we wouldn’t need to work as hard to produce all that useless stuff.
Today, the average American works fewer hours than people did 100 years ago, but we still haven’t quite perfected our work-life balance.
Keep Learning How Money Works
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