Every day, thousands and thousands of Americans need financial help with absolutely no one to turn to. People do not know what they don’t know. It is a fact that 78% of Americans live paycheck to paycheck (2023 survey conducted by payroll.org) and 27% of US adults have no emergency savings (Bankrate 2024, Annual Emergency Savings Report). In 2023, 82% of adults had at least one credit card in their wallet , implying credit card debt (Credit Card Statistics and Trends 2024, Forbes Advisor). In fact, the average credit card debt in 2024 was $8,024 and 28% of Americas have $0 saved for retirement (lendingtree.com).
In 2022, 6 million Americans or 1 out of every 10 Americans aged 65 years and older retired in poverty (www.ncoa.org and businessinsider.com). Another 45% of Americans will run out of money in retirement. Yet only 23% of Americans are debt-free (Federal Reserve). What causes this huge rift? Why are over 80% of Americans in trouble? Because we are not taught the basics of financial literacy. We don’t plan to fail; we just fail to plan due to lack of knowledge.
Let’s get started. There are basically two paths of thinking financially. For simplicity’s sake, let’s call them groups A and B. This multi-part series will compare the unique characteristics of groups A and B, their unique relationship with money, unique understanding or lack thereof as to how money works and the lasting impact on families and the ability to pass on generational wealth.
Group A represents about 95% of working middle class American.
• This group tends to be drawn to or focus on temporary solutions.
• Although in 2022, middle American income tended to span $56,600 to $169,800. Group A is considered to have a $100,000 or less per year in income (Pew Research Center).
• They have a job working for someone else like a company, schools or the government. This means they do not have control over their time or how much they can earn. This often also dictates where Group A lives and where their children go to school.
• This group has been taught for years to put their money in the bank and averages about $13,000 in savings earning simple interest at very low rates.
• If Group A has insurance it is Term life insurance provided by the employer. This insurance is not permanent, terminates about age 80, terminates should the individual leave the employer, gets more expensive with age, does not have a cash accumulation component and usually does not provide living benefits.
• Group A carries a lot of debt in the form of credit cards and mortgages. They rely on credit cards for emergencies or when large expenditures are needed. This results in Group A living above their means. This group is under the illusion that they “own” their own home. The reality is if the mortgage is still being paid, then they are in dual ownership or partnership with the bank. Additionally, the bank remains the majority owner in the house for quite some period of time. They do not own their home until the average 30-year mortgage is paid off. If the buyer defaults on the mortgage, then the bank owns the home.
• There is minimal tax advantage to shield income.
• The individuals tend not to have a financial advisor or financial plan.
• If there is retirement savings taking place, Group A utilizes 401k or 403b plans. These plans often do not allow the individual the freedom to determine where the money isn’t invested, are at the mercy of the stock market, are laden with fees, have an age limitation on when you have access to the money and has an age at which you must pay taxes on these money or suffer penalties.
My next article will explore Group B.