How broke is broke?

May 13, 2009 10:45 AM

When people say they're broke, do they literally have no money?

With or without the current recession, do people who rack up credit card debt, default on their mortgages and miss payments on loans really not have any money? As in, are all of their bank accounts actually at zero?

It seems that if I were in a position where I was up to my eyeballs in debt and/or were about to foreclose on my home, I'd tap into my 401k, IRA, investments, savings accounts or whatever else I had to continue to provide for my family. So when people choose default or bankruptcy, have they already exhausted these resources (assuming they existed to begin with) or do they just not have the current inflow of cash to support their lifestyle, but hold on to any other resources they have?

posted by JuiceBoxHero to work & money (38 comments total)

In a word, yes, sometimes. I guess that's two words.
posted by roomthreeseventeen at 10:47 AM on May 13

The question as stated could not be answered except by accountants, with full access to any given individual's assets.

I think you are not differentiating people saying "I'm broke" from the concept of "poormouthing." This varies by individual.

I know plenty of people who say "I'm broke" who have more income and assets than I. I know people who say "I'm broke" who are living paycheck to paycheck, without convertible assets.
posted by adipocere at 10:48 AM on May 13 [1 favorite has favorites]

Well technically, if they're in debt that's greater than their assets, their net worth is negative. They may have assets (cars, house, bank accounts with money in them, etc.), even if they are defaulting/missing payments on loans, but these assets, especially if they are liquid, may be going to pay for basic needs, like food. Individuals declare bankruptcy when they are unable to pay the creditors to whom they are indebted, which does not necessarily mean they have zero assets, but usually means that their net worth is negative.
posted by emilyd22222 at 10:51 AM on May 13

there's two questions here: what do people mean when they say they are broke? (answer: depends on the individual and how much they like to complain/exaggerate.) What is the legal requirement to be considered 'broke' ie. eligible to declare bankruptcy? (answer: i don't know. Probably varies by jurisdiction?)
posted by Kololo at 10:52 AM on May 13

Also, it's all relative to someone's standards of financial status. Although yes, I think "broke" literally means NO money, for other people it might mean that they're account is empty but they still have assets (home, car, etc.)
Some people might, if they are used having really high standards of financial investment, consider themselves broke if their investments are wiped out and all they are left with is liquid assets. I don't think that really counts... but if someone says they are broke (in a personal conversation) you can ask what they mean.
posted by davidnc at 10:53 AM on May 13

Also, people may say they're broke if they are unable to pay for things outside of necessities. Like adipocere said, they're living paycheck to paycheck, and thus breaking even every month. Although I don't know the etiology of the word "broke," I wouldn't be surprised if it had something to do with "breaking even."
posted by emilyd22222 at 10:54 AM on May 13 [1 favorite has favorites]

I'd tap into my 401k, IRA, investments, savings accounts or whatever else I had to continue to provide for my family.

Bankruptcy is a tricky issue because in the US it varies state by state as to how much you can have/keep and still be bankrupt. In Texas, you used to be able to go bankrupt and still keep your house (whatever sort of house you lived in) and so you'd get people who were bankrupt who basically lived in mansions. That said, the concept of bankruptcy really only applies to people who are already more or less living in a middle class world with credit cards, bank accounts, student loans, perhaps. Truly poor people not only don't have these things (or if they have credit cards or mortgages, for example, they're at terrible interest rates with bad terms) they don't have a familial safety net and often they don't even have the toolkit to build these things up. They certainly don't have investments or retirement funds and bankruptcy won't really help them. One of the things that's so nefarious about poverty is that it's hard to break out of because it's hard to learn what better behviors are when you don't have people around you to model them. And many people think that talking about money is rude so it's hard to get a feel for how other people are dealing with their money.

So, to your question which is a little unanswerable, I think people use the term broke differently

- some use it for short-term cash flow issues [i.e. I don't have money now until my check clears but then I'll be fine]
- some people use it for longer term finaincial issues [i.e. living paycheck to paycheck or having debts that are impossible to get out of]
- some people use it because they don't have a twenty in their wallet

It's hard to talk to people about money issues because they feel like it turns into a judgey thing "well if I was in your situation I'd be doing THIS" and so at least in the US we've deevloped a culture where this sort of thing is private and not discussed too openly.
posted by jessamyn at 10:58 AM on May 13 [4 favorites has favorites]

I said I was broke the other day, but I had $.61 in my bank account at the time. I don't know for sure, but I'd guess that by the time people get around to filing default or bankruptcy, they've exhausted all other options.
posted by motsque at 11:01 AM on May 13

I think that you can be "broke" without being homeless. You can talk blithely about selling a house or a car, but a) how easy is that in today's market? and b) most people are upside-down with their house or their car or both--i.e., they owe more than the house or car is worth, and c) you need somewhere to live, and you may need to drive to look for jobs.

I'd tap into my 401k, IRA, investments, savings accounts or whatever else I had

I have never encountered anyone who seriously said they were "broke" and still had investments or savings accounts that they could convert to cash. Not everyone can liquidate a 401k easily; some employers set them up with very complicated liquidation requirements, which simply not having any money wouldn't meet.

Now, yeah, people say they're "broke" exaggeratedly when what they mean is that they have less cashflow than they need, or even than they'd like. The rental car I'm currently driving is not literally a piece of fecal matter, either, nor was the beloved Civic hatchback that was stolen from me literally made of gold, and I have no idea whether the thief is literally in an incestuous relationship with his unmarried mother.
posted by Sidhedevil at 11:01 AM on May 13 [8 favorites has favorites]

If you are asking about the legal definition of "broke enough to declare bankruptcy" that gets established when you file for bankruptcy. I am not a lawyer but generally I think you have to prove you can't pay back any substantial portion of your outstanding debt and need relief from it.

If you mean socially, "when people say they're broke" they mean they don't have enough money for desired discretionary spending. I'm comfortable saying I am broke because my liquid wealth is less than my debts. I think different people mean different things. Or they don't want to buy that ticket to the concert you just invited them to.
posted by RajahKing at 11:02 AM on May 13 [1 favorite has favorites]

You think all people have a 401K, IRA, investments, or savings accounts. Really!?!

I was one of the few people in my circle of friends with a 401K- most are either underemployed and can't afford to save, or work for lousy companies that don't offer it. I got laid off in February, a week later the engine died in my car, and the small amount I had managed to save disappeared. Other friends who have been laid off had to take the cash payout of their 401K to cover the difference between NY's pathetic maximum unemployment (currently $430 a week before taxes) and their basic necessities and bills. Most don't know what they'll do once it's gone, and very well may end up homeless if they can't find work. Moving to a cheaper apartment isn't really an option since no one will rent to someone without a job.

I don't have an IRA, I don't have investments, and my savings account rarely had more than a couple hundred at any time BEFORE I lost my job. I don't think anyone I know has investments or an IRA. Most of my friends live paycheck to paycheck without any substantial savings of any kind.

This isn't a bunch of slackers, either. My friends are all gainfully employed, most are college graduates, a few are home owners. It's brutal out there, and in some areas of the country the latest crisis is only the latest in a long string of them. Living paycheck to paycheck is far more common than you'd imagine.
posted by Kellydamnit at 11:02 AM on May 13 [7 favorites has favorites]

"There's a big difference between being broke and being poor." Broke is primarily a cash flow problem, and poor is, well, no cash flow at all.
posted by ldenneau at 11:14 AM on May 13

There is "broke" and then there's "poor."

"broke" usually means negative net worth, can't make the car payment, whatever. But not literally having no way to get money to buy food.

I've also known people who call themselves "broke" because their bank account is empty. They have credit cards with zero balances but refuse to ever use them.

I myself have been "broke" to the point of taking my coins to Coinstar to buy soup because I had no money and every credit card was at or over the limit. Not proud of it, but it happened. But I still wouldn't call myself "poor," because I had friends I could borrow from or, as a last resort, my parents would never let me starve.

Poor is truly having no money, no way to get money, and no place left to turn for help.
posted by drjimmy11 at 11:14 AM on May 13

Sometimes I say I'm broke but I really mean, "My chequing account is below its disposable-income cushion-level and I'm gonna go easy on spending til the next paycheque so I don't have to tap into any savings." But my old roommate used to say she was broke and literally that meant she would eat old pasta from the back of the cupboard. She had a whack of debt, no savings at all, and the $15 in her bank account had to be saved for bus fare.
So it depends. A lot of people I know- especially in their 20s&30s - only have very small savings, like under 5K even though they've been in the workforce for over a decade. So they really are living cheque-to-cheque, and when they say broke, they're not exaggerating.
posted by pseudostrabismus at 11:15 AM on May 13

I work in a financial planning firm and I assure you that no two people have the same definition of "broke."
posted by small_ruminant at 11:17 AM on May 13 [4 favorites has favorites]

With or without the current recession, do people who rack up credit card debt, default on their mortgages and miss payments on loans really not have any money? As in, are all of their bank accounts actually at zero?

Although as you said, some people have reserves of cash in the form of savings and retirement accounts, for most people the difference between being debt-free/making payments and being loaded with debt/defaulting is an issue of income versus spending.

For credit card debt, the ease of racking up unmanageable amounts of debt while making tiny minimum payments causes a lot of people to just overspend their way into financial problems. A small amount of debt carried over every month due to poor spending habits can quickly snowball to massive amounts of debt due to the relatively high interest rates involved. They are never broke in the sense of not being able to spend any money, but every month they overspend it gets harder and harder to pay it all back.

For more serious financial problems, a lot of times it's due to an unforeseen decreases in income or increases in spending. In a recession like the one we're in now, all kinds of people are losing their jobs, and being unemployed for an extended period of time can burn through any kind of emergency savings fairly quickly. On the increased spending side, one major issue is health problems, especially if the person doesn't have health insurance or has a condition that isn't covered through their insurance. No matter what the reason is, if someone has a lot of fixed expenses and either less income or more expenses get added to the equation, they usually don't have a lot of protection against being effectively unable to pay and forced into bankruptcy.
posted by burnmp3s at 11:17 AM on May 13

Your lead-in question reminded me of this cartoon. I think the common, conversational usage of "broke" refers to disposable income - not too many people talk about their significant debts in casual conversation.
posted by Metroid Baby at 11:17 AM on May 13

It all depends on three things: Context, context, context.
posted by eggman at 11:19 AM on May 13

When I say I'm broke, it means I'm walking the 2.5mi to work and back. Literally, less than a couple of dollars (or cents) in the bank account (I don't have access to credit, savings, family, etc.).

So, sometimes, yes, when somebody's broke, they pretty much literally have no money. However, I have seen people say they're broke when they have less money than they're comfortable having (and have plenty by my poor-ass standards).
posted by General Malaise at 11:21 AM on May 13 [4 favorites has favorites]

There are tons of people that don't even have bank accounts. They take their paycheck, cash it at the liquor store (losing more money), and then complain about the prices.

I have a friend that worked a liquor store that would see that every single payday. There was a bank right across the street and he would try to tell them that they could open an account for free to deposit or cash checks but they don't care.

When it comes to my realm of friends when they say "I'm broke man" they just mean, "hey I don't have any money to spend on frivolous stuff."

For me, broke is being in unmanageable debt. I don't know what that's like as an adult and hope I never do.
posted by zephyr_words at 11:24 AM on May 13

It's gotta be pretty nice to have a 401 and a roth and lots of options. Good for you. Gold Star.

There are lots of us out here who work our asses off, try to put away 10-20%, and still find ourselves living very much paycheck to paycheck. My current situation was one where I thought I was doing something that would, in the long term, benefit my financial situation greatly. More pay, better town, etc. It took the sum of my savings to get here, about a whopping $5000.

Turns out, it was fail. Total, epic fail. Bad idea. Now I've no job and the savings account is tapped. Total money to my name? Maybe $800, not counting the gas and food to move back home in 2 days. (1021 miles, to be exact.)

So yea, I'm broke. Got myself here, sure did. This bed? I made it, laying in it, not loving it.

Now, on the other hand, I know a couple who makes $140,000 a year in a town where median for a couple is closer to $55,000...and they live paycheck to paycheck too with no savings, but that's because they live beyond their means.
posted by TomMelee at 11:25 AM on May 13 [2 favorites has favorites]

I have never encountered anyone who seriously said they were "broke" and still had investments or savings accounts that they could convert to cash.

Guilty as (not directly) charged. When I say "I'm broke" I mean "I have spent all of my readily available cash this month and would have to tap into my savings, which I shouldn't do."
But this is the kind of "broke" I'd say to friends to explain why I'm not going out with them on Saturday. It's not a declaration of bankruptcy.
posted by ClarissaWAM at 11:30 AM on May 13

I always took "broke" to mean "not having enough money to do [whatever]." It can mean not having any money whatsoever, or it can mean that money's tight, so no more Papa John's on Friday nights for the time being. But that's a clarification they'd probably rather not discuss with other people.
posted by katillathehun at 11:32 AM on May 13

You think all people have a 401K, IRA, investments, or savings accounts. Really!?!
Not necessarily- but the types who foreclose on a $400,000 house very well might. That part of the question was more directed at the foreclosure element than anything else.

Living paycheck to paycheck is far more common than you'd imagine.

I know a couple who makes $140,000 a year in a town where median for a couple is closer to $55,000...and they live paycheck to paycheck too with no savings, but that's because they live beyond their means.
Anyone have a resource for statistics/research on this? IMO, this is a defining line in economics and would say a lot more about our culture and society than income per capita, GDP or a similar metric.

I know it's kind of a tough question. I really wasn't sure how to word it so it made sense. I appreciate the different angles the respondents have taken.
posted by JuiceBoxHero at 11:34 AM on May 13

I think I misunderstood the question. You really just wondered what people meant when they say they're broke, versus asking if people are actually broke-broke. My bad.

I think lots of folks say "I'm broke" when they mean their not-already-allocated money is dried up for the pay period/month. Already allocated meaning recurring bills and obligations.

Also, I think you're 100% right on what that metric would say. I'd love to see a resource too.

Conspicuous consumption didn't die in the 80's.
posted by TomMelee at 11:37 AM on May 13

I've found that, when people say they're broke, they often mean that they don't have the expendable income to waste on a particular item or activity. This in no way means they have zero dollars to their name, or even in their pockets. So I think the last sentence of your question sums up a decent percentage of the cases where people say they're broke.

There are, of course, people who have literally no money (or negative money) who say they're broke and mean it.
posted by sjuhawk31 at 11:37 AM on May 13

When my husband and I say we're broke, it means we can't afford to spend anything to the next pay check because we already spent what money we can afford. When some people say they're broke, they mean seriously, they can't spend any money on non-necessities ever. Sometimes they mean they have pretty much nothing in their bank account. When people say they are broke, I would not assume that they mean they have no house or car, though they can mean that.

Regarding bankruptcy: generally speaking, if someone is in good enough financial condition to have a savings account and a retirement fund and investments, they're not going to have crippling credit card debt. There are exceptions, but people usually end up with credit card debt for a few reasons that don't mesh with having all those assets to tap into: either they are terrible about spending money when they can't afford to, in which case they're not going to save anything, or they're living paycheck to paycheck using credit cards to make ends meet and the credit card debt snowballs, in which case they never had anything to save in the first place.

Most people don't have a spare house or car they can sell or anything. People need a place to live and they need a way to get to work. Public transportation is terrible is most cities in the United States. This is why you can keep your house and car in a lot of bankruptcy cases. People need those.

You file Chapter 7 bankruptcy -- the one that wipes everything out -- if you meet some strict conditions; lawyers can do some tricky things to fit people into a Chapter 7, but generally speaking there has to be pretty much no way you could reasonably pay back the debt. You have to make basically enough to pay for your rent/mortgage, car payment (if you have one), bills, food, and some other stuff like medical expenses.

You file Chapter 13 bankruptcy -- the one in which you pay something, perhaps everything, back -- when you don't qualify for Chapter 7. To qualify for Chapter 13 they have to make sure you can afford to pay something back. Depending on how much one has left over after necessities each month, and how much total debt is owed, they will figure out how much you can afford to pay, and this is divided up usually over a five year period. You can end up paying pennies on the dollar, but if you have too much income left over after necessities each month, you could end up paying the entire amount back. Why would someone choose to do that if they have to pay it all back anyway? It halts interests and fees on the credit cards.

For both bankruptcies, I'm unsure what one's financial situation needs to look like for them to have any kind of assets seized. Everything above is based on the experience of family members, and they're the paycheck-to-paycheck type that have barely any assets to seize. My mom is filing Chapter 7 and she gets to keep her car -- which she owns -- and is staying in her house, which she does not yet own. (Worth noting: my mom's mortgage payment is less than an apartment in a really crappy part of town. Real estate is weird. Sometimes selling one's house would do no good whatsoever, because the alternatives are more expensive.)
posted by Nattie at 11:38 AM on May 13

Most of the people I know who say they are broke might have cars or a (small) 401k, but ~$6 in their checking account.
posted by shownomercy at 11:44 AM on May 13

As has been pointed out, there are multiple questions here.

1) Yes, broke tends to mean broke because most folks don't have any retirement savings. Personally, I wouldn't for a second consider tapping into any of my retirement funds in order to save myself from foreclosure -- those funds are for retirement or medical emergency. But then, I have no family.

2) In the current environment, many, many people are walking away from their homes with $$ still left in their pocket or in various retirement vehicles. I imagine these people wouldn't say, "I'm broke." They'd just say, "Fuck it." Many of these people aren't walking away because they have to; they're walking away because their investment didn't pay off and they're pissed about it. I've met several of these here in Vegas.

I don't know anything about bankruptcy other than to avoid it.
posted by coolguymichael at 11:50 AM on May 13

"You think all people have a 401K, IRA, investments, or savings accounts. Really!?!"

"Not necessarily- but the types who foreclose on a $400,000 house very well might. That part of the question was more directed at the foreclosure element than anything else."

Letting a house go to foreclosure rather than looting retirement accounts to keep paying the mortgage may be a rational economic decision (not throwing good money after bad) in many cases.
posted by Sidhedevil at 11:54 AM on May 13

I know a couple who makes $140,000 a year in a town where median for a couple is closer to $55,000...and they live paycheck to paycheck too with no savings, but that's because they live beyond their means.
Anyone have a resource for statistics/research on this? IMO, this is a defining line in economics and would say a lot more about our culture and society than income per capita, GDP or a similar metric.

Here's some data showing the annual personal savings rate in the US. It's re-calculated every month. It's fairly telling that in the leadup to the current economic crisis savings rates were consitently close to zero (or even negative) whereas now people are saving at higher rates that haven't been seen consistently in the last decade.
posted by burnmp3s at 12:05 PM on May 13 [1 favorite has favorites]

In my group of comfortable high school/college age friends, broke usually means "Sorry, I can't go out tonight because I don't get paid til Friday."

Of course, we'd use the same word for a more extreme variant of bankruptcy, but it's all in the context, really.
posted by Precision at 12:07 PM on May 13

Most people who say it in casual conversation mean "I'm broke, which means I don't want to go out/buy unnecessary things/spend unnecessary $$ at the moment." A lot of times it's an easy excuse for not wanting to go out or go do expensive things because no one will question you about your financial status any further.

But if they're actually talking about going bankrupt/not making mortgage payments then it's a more serious state of not having $$, so refer to answers above.
posted by KateHasQuestions at 12:31 PM on May 13

Well, I have a 401k but can't draw any money out of it without quitting/leaving the job.

Meanwhile, my house payments are very expensive and the home was built with the understanding that we'd have two incomes, because I was married at the time.

I spent ALL of my savings, borrowed the maximum from my 401k allowed, and sold everything of value I've ever owned to pay for my divorce.

The house was not in my name until after the divorce was final; to avoid capital gains tax, I was unable to put the house up for sale until the two year limit had passed, which it recently did. I am now trying to sell my home in the worst market imaginable in the hopes that I can move somewhere more financially reasonable.

So, I make decent money and have a nice home and live paycheck to paycheck due to a series of circumstances that were largely beyond my control.

I'm broke because 52 percent of my income is my house payment.

I no longer contribute to my 401k beyond paying back the loans I owe.

I expect I represent millions upon millions of Americans; if I threw a baby into the mix, got sick or suddenly had to start making a car payment, I'd be in default pretty quick, to be honest.

Visibly, it would appear I have a great job, a nice home, and am on top of things. But all it takes is one thing (getting laid off, car accident, that sort of thing) and I'd be screwed.

I have been working full-time and putting money into a 401k since I was 22. I have virtually nothing to show for it and am somewhat bitter; however, I'm hoping that selling the home will put me back into a place where "broke" isn't the daily reality, but with the market I'm against now, I have to accept that I will be living here indefinitely and pray for the best.

My bank balance gets pretty low, and I try not to put things on credit cards, but if something comes up that is over $200, I have to. I shop for essentials, go out less, seldom drink, seldom eat in restaurants and my car is 10 years old; I don't travel really.

To me, broke means I have just enough money to pay bills and nothing extra. However, I have family members and friends who define broke as living on their credit cards while freelancing in hopes of eventually getting another full-time job with benefits (and who have been living that way for more than a year and whose unemployment ran out months ago).

It's a scary time to be an adult, I think. It's a huge reality check to the world, and I hope that something good comes of it in the long run.
posted by Unicorn on the cob at 12:31 PM on May 13 [2 favorites has favorites]

I consider myself broke if I don't have enough money for a plane ticket to a new country, 6 months living expenses there, and enough money to start a new business. But then again, I live in cheap countries.
posted by conifer at 1:25 PM on May 13

Yeah, I've said I was "broke" when I actually have a little money stashed. But all that money is usually going towards bills and debt or maybe a little savings in case of emergency. Other people I know when they say they are broke, they really may have large amounts of money stashed away; other people when they are broke, literally, if they make another withdrawal, they will go into overdraft and that's that.
posted by Rocket26 at 1:28 PM on May 13

Technically, bankruptcy is a process. The standard for whether you are eligible to declare bankruptcy and enter that legal process is insolvency. That means owing more than you have in assets.

This has little to do with the idiomatic meaning.
posted by dhartung at 10:51 PM on May 13

I declare myself broke when my ex asks to borrow $50 until next week.
posted by Duke999R at 4:02 AM on May 14