American Finances on the Rise? – Episode 202

This transcript was auto-generated and may contain errors.

[00:03] Welcome to the Prosperity Podcast, fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your host, bestselling author, Kim D.H. Butler and No BS Money Guy, Todd Strobel. Hey everybody, welcome back to the Prosperity Podcast. This is No BS Money Guy, Todd Strobel. Once again, we have our co-host and bestselling financial author, Kim Butler, with us today. How are you, Kim? Very fine, Todd. Thank you much. Awesome. Well, today we’re going to be going through, it’s a report that was issued by FINRA. So this can be found, I want to make sure I give the right, it’s, anyway, FINRA.org. You can get a copy of this and it was just released in July of 2016 and it has some

[00:59] interesting observations. I think probably the best thing to do is kind of go over the introduction and then we’ll find some statistics to work off of backwards to find out what the actual numbers are. How about that? Sounds great. Okay. It says the U.S. economy has grown steadily over the last six years. They’ve started doing these studies in 2009, which actually amazes me that they didn’t do any of these studies until 2009. That’s a shocker. But they started off probably at one of the worst times in least recent history, which would have been just after the 2008 crash. So anyway, it’s kind of interesting, the numbers comparing 2009, 2012, and October of 2015, comparing those three against each other.

[01:58] But there’s no surprise that the economy has continued to grow. Financial stress has diminished and financial satisfaction among American adults has gone up compared to both 2009 and 2012. Does that surprise you at all? Interesting. No, when I think about it, just because I think the people that they’re paying attention to and that would actually answer the survey are feeling like the economy is decent, my jobs are decent, my values are rising. Of course, the stock market is going up and that’s causing a lot of people to get lulled into a sense of everything’s okay as long as everything’s okay. Gotcha. And that would go the percentage of Americans who find it difficult to make ends meet has declined as has the number of homeowners whose home values

[03:00] are underwater. Oh, cool. Well, we’ll be grateful for all of that then. But you know, again, you could go back to that same stock market comment that you just made that, you know, wealth, digital wealth, I guess that is not in some type of hard assets, you know, the whole cycle could reverse again and almost has to. Absolutely. And that’s the nature of the stock market and one of the reasons that we don’t like it. And here’s the biggest takeaway that I got from this, which shows where the concern is, is that wealth and income inequality in the United States is at an extreme not seen before World War II high. So I’m not sure what I think about the whole income inequality thing. I think many times you get paid what you’re worth.

[04:02] And so if somebody feels like they want to earn more income, then they need to find a way to provide more value. So, you know, maybe it’s not politically correct, but that did never stop me from opening my mouth. So I’m going to go with don’t agree. How do you think more moving towards a global labor force impacts that? Well, that’s a good question. I think that it’s awesome when people can work wherever they are. And so I realize that there’s issues around working and whether you’re a resident of a particular country, et cetera. But I think people should work where they are. I think they should pay taxes where they are. And I really am looking forward to the day where all governments can operate.

[04:56] I just read about a particular country and now I am not sure I can state which one it is, but literally everything works off basically a debit card. You vote, you pay taxes. You get your benefits all off of this one card. It’s totally transparent. There’s absolutely no room for any kind of false information causing positives or negatives. And it’s like what Peter Diamandis has said about technology. When the bad guys can’t hide, they just basically quit doing their stuff because the reasons bad guys get away with things is because they can hide. So maybe that was a long answer to global workforce, but I feel like as we progress as a society, where we physically are needs to be where we pay taxes and where we earn our income.

[05:49] Awesome. All right. Well, let’s continue on with some more of these actual statistics. Now I want to go over some of these. Um, the percentage of Americans who say they have set aside three months worth of living expenses in case of an emergency is up to 46% from 40% in 2012. Okay. Well, now that’s something that we can be grateful for, right? We want people to be continually saving, but as you know, we like the word emergency and opportunity. Now, of course, you know, that’s just our own personal opinion that I’m inserting. It’s not like everybody else is going to pick up that terminology, but it’s very, very good news that people are saving a little bit more money. On the flip side, only 39% report having ever tried to figure out how

[06:46] much they need to save for retirement and over half worry about running out of money in retirement. Interesting. Well, you know, I’ve just finally, after all these years, figured out a better word for saving for retirement. And it’s just, in other words, the saving part is fine, but the retirement word I don’t like, and it’s just future finances. And so of course people can’t figure out how much they need to save for retirement. That assumes that you can know what you’re going to retire, what year you are going to retire, how old you’re going to be. It also assumes that, you know, when you’re going to die, which of course nobody does, it assumes that, you know, what interest rate you’re going to earn during that time.

[07:38] It assumes that, you know, what inflation rate is going to be during that time, and you have all these things that you have to make assumptions about in order to get the quote number figured out for retirement. And so it’s just one of those issues that I don’t believe people really can trust the assumptions, number one. And then number two, if we just focused on saving for our future finances, then we would be interested in that. We would want to do it. We would enable ourselves to get excited about it, and then we would actually do it, whereas it’s very, very difficult to get excited about this thing called retirement because it’s such a, a dead end road. Number one, you know, a lot of people in their thirties and

[08:36] forties, they’re looking at people in their seventies and thinking, I don’t want to go there. Like that retirement thing, that does not look fun. It means not having purpose. It means not having income. It means not doing the things that I want to do that I thought I was going to be able to do, but now I can’t. And so who wants to save for that? Nobody. So future finances, that’s my hashtag. Got it. That’s very well said. Thank you. Managing financial products, new home buyers are less leveraged. That’s the percentage of recent home buyers in the past five years who made a down payment of over 20% of the purchase price is up to 33%. That seems like a really high number, doesn’t it? Interesting.

[09:25] Well, uh, with the caveat that I wouldn’t ever recommend somebody put more than 20% down, um, as a general rule, when you put more down, that means you had savings, so that’s good, but oh my gosh, people would be so much better to go ahead and put the 20% down, be quote leveraged according to their words, and then take that other amount of money that they were going to put down against the home and put it in a savings count or in cash value of whole life insurance so that they would have it available to make payments in the event of a job loss or an illness or the kind of things that cause again, quote leverage to be a problem because leverage is not a problem at all, as long as you have backup plans, as long as

[10:18] you have savings or cash value of life insurance to help you make the payments and when you put those extra dollars down, that’s awesome. You had the extra dollars. I mean, we have to be pleased about that, but instead of putting it against the mortgage, literally giving it up, it would be better, more efficient, more effective if you just put it in a savings account and held it for your own use down the road rather than literally handing it over to the bank for their use. Awesome. And also in the first time since this survey was started, more than half of credit card users say they always pay their entire balance in full each month. Now that I’m impressed with more than half. And again, we have to know that people answering this survey are

[11:05] probably fairly financially focused, but that is fabulous. Super, super good news. I think a couple of podcasts ago, we were saying somebody said, never use your credit cards and we kind of interpreted that to use them, but pay them off every month. And that is so much more efficient for your own finances, good for your own mental health, cause you don’t have this quote debt hanging over your head. And so yeah, pay it off every month. That’s great. I’m super glad to hear that. Interestingly though, among student loan holders with payments due 37% have been late with a payment at least once in the past year and 25% more than once. Interesting. Yeah, no surprise. I mean, that’s the student loan is a challenge and I think a lot

[11:58] of students are kind of out of sight, out of mind, you know, I’m done with school. Now I have this bill hanging over my head and it’s hard for them to connect to it. Not that that’s any excuse at all to be late on your payments, but I’m not super surprised to hear that. And then of course, you know, somebody’s out of a job. That’s the bill. That’s not going to get paid cell phone bills and you know, rent and whatnot are going to get paid first. So that is an interesting statistic, but it’s not one that surprises me very much. Financial knowledge and decision-making, the percentage of respondents who are able to answer at least four or five financial literacy quiz questions correctly shows a slight downward trend since 2009, despite the fact

[12:45] that Americans perceptions of their own financial knowledge has become more positive over the same time period. They don’t tell us what five questions they asked though, do they? I actually can get in there, but it’s a separate thing I have to go into. So I don’t know if we’ll have time for that today, but I can, I think it’s a bank of questions that it rotates, which ones you get. So that is fun. We’ve got to do that on another podcast because in the past, when I’ve read supposed financial literacy questions like that, they were just ridiculous. They were first of all, all focused on the stock market. And that is not financial literacy. That’s stock market literacy. Financial literacy implies that you know how interest rates work, that

[13:30] you know how to calculate the difference between interest rates, that you understand what an amortization schedule is, that you know how carbon payments are calculated, that you know how mortgage payments are calculated, that you understand all kinds of things that are necessary to make good financial decisions. And all of that comes way before investing any money in the stock market. But I’ll get off my soapbox on that one and just go back to the statement at hand. And it said, now I can’t even remember. Did it increase or decrease? Well, the test scores are lower, but the people’s perception is that their knowledge is higher. That’s always scary. Well, I’m going to just go with no comment on that, I think.

[14:19] Well, I think it’s a matter of what, like you said, you know, so many times even presidents are evaluated by the amount of money that the voters have in their pockets. Right. Yep. And how do you measure that? So I think there’s just, you know, everything seems to be on an upward trend, people are happier, so they’re less concerned, which also by the test scores would indicate that they’re paying less attention, which is probably not a great sign. Right. Okay. They asked the percentage, the percentage in 2009, 2012, and 2015. If the person taking the survey had experienced an unexpected income drop in 2009, that number was 40%. In 2012, that was 29. And then in 2015, it was 22. Yeah. Well, that’s cool.

[15:33] And it doesn’t account for all the people that never got employed again or got employed at a lower figure and then, you know, went up from there, which is great. I mean, we have to be grateful for that also, but it does not surprise me that there are people that have to deal with that. I’ve had to deal with that. Anybody that owns a business has to deal with that. And that again is why it’s so important to have savings and liquidity to be able to make up because it’s very difficult to switch lifestyle super fast. And so it’s something that you usually need two or three months to kind of adjust to. And again, having savings, having cash value of life insurance can make up that difference until you can make the changes in your

[16:17] lifestyle that you need to, to accommodate the lower income. Well said. Spending versus savings. Oh, this is a good one. And there’s three categories. There’s the category of those who spend more than their income. There’s those who spend about their same amount as their income, and there’s those that spend less than their income. Got that? Yes. All right. So which one of those is most interesting? We’ll go that one first. Those that spend less than their income. Spend less than their income. In 2009, it was 42%, 2012, 41%, and 2015, 40%. So the percentage rate of spending is going up slightly and the saving rate down. Right. But not a big change. Not at all. Not huge, not huge. And considering what 2009 was, looked like, I’m surprised there

[17:23] isn’t more of a change. Yeah, agreed. And so again, we’ll just reiterate that it’s just so important to live on less than you earn and yes, focus on increase your earnings. I mean, I’m all for that, but the fact is you cannot go on very long spending more than you earn without upending your personal financial picture. So I know the government tries and many corporations do too. And so do many families, but it just doesn’t work long-term at all. So we’ll just go with kudos to those that can live on less than they earn. This asks, how confident are you that you could come up with $2,000 if an unexpected need arose within the next month and the categories are, I am certain I could probably, I could probably not, and I am

[18:13] certain that I could not. Okay. So the statistics are? And the statistics are, let’s see here, 2012, we had 25% that could not, 15% that probably not, 21% that could probably, and 35% that could come up with the full 2000, 35%. That’s kind of, I mean, that’s not that high of a figure. No, it isn’t. And did it change much in 2015? Um, it went, it’s actually the, it’s improved a little bit. Um, we went from 25 to 20 in the certain not, 15 to 14 in the maybe not, 21 to 23 in the probably, and 35 to 39 in the certain. Okay. Yeah. Interesting. So again, I mean, I’m sorry to continue on this horse, but, um, it’s riding and we’ll go with it in the same direction and that is save money. It’s just, it’s just amazing to me.

[19:21] The freedom, the flexibility, the confidence that you have in your future, the peace of mind that one can have when they have savings. And I was just talking to my sister about this the other day. She and I both have children that are right around college age. And my two have been just indoctrinated into savings from day one and her too, not so much. And so her kids don’t have savings. They are constantly just right on the edge. And it is understandable. You know, that’s the age when you’re just starting out. I get that, but it is amazing to me. And we’re talking 10 and $20 of savings that Kaylee and Robbie add to their savings account or their cash value of life insurance every week or two.

[20:04] It, you know, it’s not like they have hundreds of thousands or even just thousands, but for a child starting out, having a couple thousand in a savings account, you know, to use the number that the other question did on adults to have a couple thousand in a savings account for a kid. I mean, that that’s a couple of months, you know, depending on rent in terms of capacity and again, flexibility, freedom, peace of mind, control, all of those things. So please, please get everybody in the habit of saving. And literally, I mean, this should start when your child first starts getting a allowance of any sort. There should be some money that goes into what I would just call short-term savings. It’s a slush fund.

[20:48] It’s for emergencies and opportunities. And, you know, that’s different than charity. It’s different than long-term savings, which frankly, for a child, super young, I wouldn’t even bother with. And it’s certainly different than money that’s going to be spent next week for toys. You know, there’s a need for that as well, to have a savings account that’s going to get used, saved up, used, saved up, used, saved up, used. But there is more important in having the kind of savings account that’s going to get saved and then it’s going to stay there. And, OK, yes, you know, a down payment on a home, a major trip that you need to take because of something that has occurred or, you know, a car issue or whatever.

[21:29] Yeah, that’s going to wipe that out. And if you can play the borrow against it and then pay it back game, which is something that we’ve talked about on other podcasts, then that’s super valuable. And that’s something that people in the depression era, era, I’m talking like, you know, 1920s, 30s, 40s, et cetera, everybody did that. They had a savings account and when they used it, they paid themselves back by re-depositing money into that savings account. And the really good ones added interest as well. And so you can force yourself to do that using the life insurance. Now, in this case, the interest has to go to the insurance company, but your value keeps on growing while you’ve borrowed against your cash value.

[22:13] That’s an ideal place to save. And if you can’t do that, then just use a regular savings account. And when you have to withdraw from it, then pay yourself back and pay yourself back at interest. Awesome. Well, I hope you had as much fun with this as I did. Again, if you’d like to see more of the detailed figures, you can go to FINRA.org. There’s a lot of information in there. I don’t know how useful would you rate that site for the consumers? Unfortunately, about a zero. But, you know, hey, if somebody’s curious about their research, then have at it. Super. Well, again, this is an OBS Money Guy, Todd Strobel. Special thanks to Kim Butler. Special thanks to our listeners. And we’ll be seeing you all again real soon.

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