Not long ago, a couple came into our office with questions on how they can save for retirement. They make over $300,000 per year as a couple—he is a successful attorney and she helps run a non-profit. The answer: they can’t.
Like most Americans (according to AYA and AARP), this couple spends more than they earn. Only 45% of Americans report spending less than they make, and only 14% say they spend “much less than income.” This couple falls into a common trap: living a lifestyle that appears to be in line with their peers. On top of over-spending, their debt totals more than $1 million.
What they—and anyone—can do is engage in some serious cashflow planning. Employers have been providing benefits for major medical expenses and retirement for decades but continue to ignore the basic cashflow needs of their workers. This is a huge problem, because unbalanced cashflow is the key driver of financial stress. And financial stress is proven to lead to declining health, productivity, attendance, and even safety at work.
It can be tempting to judge people that we perceive to be “wealthy,” but the reality is that most Americans are in the same boat. Two-thirds of Americans would struggle to come-up with $1,000 in an emergency.
Only 24% of millennials demonstrate basic financial literacy. This is not their fault. Americans are not just undereducated, they are miseducated. And it’s not just young people. A staggering 41% of clients of CPA financial planners reported that running out cash was their biggest concern.
About 77 million Americans (approximately 35% of adults with a credit file) have debt in collections. Nearly one-third of Americans only pay the minimum due each month. The financial crisis spurred increased savings and lower debt levels for a time, but Americans paid banks $104 billion in credit and interest fees in 2018, up 11% from the prior year and up 35% over the past five years. Again, it’s important to keep in mind that this is not about income—only 20% of Americans facing financial hardship make less than $40,000 per year.
What this boils down to is an uncomfortable truth that Americans’ lack of financial literacy means they are accidentally giving away huge portions of their money to financial institutions, consumerism, and even the IRS. They don’t need another meeting on retirement savings, health care options, or a flexible spending account. They need help with basic financial planning, which starts with cashflow planning and builds from there. If the foundation of spending and saving is not in place, the traditional benefits employers offer will never be adequate to address their workers needs. And, according to a University of Pittsburgh study, that means their workforce will have more health issues, less productivity, more turnover, and are more likely to have accidents or steal from their employer.
Let’s work together to fix this issue. Doing the right thing for employees and improving culture and profitability are not competing objectives.