Thirty days from being broke?

July 15, 2009 11:08 AM

Thirty days from being broke. Four in 10 people said their savings would last only 30 days if they lost their job, while 38 per cent said they would have to use credit cards to cover household bills and other essential expenses. Is this just an Aussie thing? I find the trend towards using credit to pay day to day living expenses a bit scary, but how common is it really in your demographic/country/etc? Is living that close to the financial edge the new norm in the Western world?
posted by Lolie to work & money (50 comments total)

This thread about Dreamhost accidentally billing people twice/early/etc has a lot of relevant action/reaction posts about people living near the brink.
posted by unixrat at 11:11 AM on July 15 [2 favorites]

That one didn't come up on search. Sorry.
posted by Lolie at 11:16 AM on July 15

Depends how you look at it. People here in the UK (and I'd assume elsewhere) often have insurance policies to cover mortgage payments and other expenses in the event of losing their job. And of course here in the UK we have a benefits system that will cover mortgage/rent payments once you've registered as unemployed.

On that basis, there's less of an incentive here to save for that eventuality.
posted by le morte de bea arthur at 11:18 AM on July 15 [1 favorite]

1. ...how common is it really in your demographic/country/etc? For me, and among my friends in Marin County, CA, it's pretty common. Not everyone that lives here has a trust fund, a hot tub, or even a reasonably paying job.

2. Is living that close to the financial edge the new norm in the Western world? Speaking only for myself, I have been living paycheck to paycheck for the past 14 years since I moved to California, but I love it here and that's the trade-off.

Additionally, I could go about a month with my savings before I need to break out the credit cards to pay my bills. And that'd last less than 5 months before I reached my credit limit.
posted by goml at 11:19 AM on July 15

Not for me (I'm very prudent, have no debt and six months' living expenses saved) but for many people I know it is definitely the case. I've always seen it as a symptom of the consumerist NEW GIANT TV! NEW GADGET! NEW CAR! FAR BIGGER HOUSE THAN I NEED OR CAN AFFORD! mindset which relies on credit to achieve. Hopefully this will be far less common given the credit crunch and people realising it's all just bullshit anyway.
posted by goo at 11:21 AM on July 15 [1 favorite]

Yes. Consider that payday loans are a massive industry in the US. You wouldn't pay 3000%A interest if you had any meaningful reserves.
posted by a robot made out of meat at 11:24 AM on July 15

Wow. I didn't realize Aussies were as bad with their money as (we) Americans. Every time a credit card question shows up here, I cringe.

"Is living that close to the financial edge the new norm in the Western world?"

I fear the answer is Yes.
posted by 2oh1 at 11:24 AM on July 15

No, this is not just an Aussie thing. I've heard a similar statistic for the US as well. I recently got "congratulated" by a financial planner for having ~6 months of savings, apparently that's rare... but it still makes me feel vulnerable.

I think that many "developed" countries are facing this fate. If you google "savings rate US" there are a lot of articles from 2006 about how the savings rate dipped below 1% of household income, the lowest rate since 1933 or something. Fast forward to 2009, and the articles talk about how there is a growth in savings rates for US households as debt becomes less manageable (and harder to acquire, to be realistic.)

I imagine the same pattern holds for Australia, probably Canada and the UK.

Many of the friends I have queried about savings reply that they have none. My demographic is urban, middle class, 30 year olds. My hunch is that savings rates also are tied to marital status in my group. Single - no savings. Married/have children - more likely to have savings.
posted by baxter_ilion at 11:27 AM on July 15

People here in the UK (and I'd assume elsewhere) often have insurance policies to cover mortgage payments and other expenses in the event of losing their job. And of course here in the UK we have a benefits system that will cover mortgage/rent payments once you've registered as unemployed.

Here too, but unemployment benefits are less than $250 per week which isn't going to cover private rent and or mortgage payments (and eligibility tests take partner's income into account).

I guess the numbers are a bit shocking to me because it suggests that many people couldn't live off income support if they had to and would go into unsustainable debt as an option of first resort. That some people are living beyond their incomes doesn't surprise me - that such a large percentage of people are doing so is what I find scary. It's a radical change from the attitude of credit cards being primarily for spreading out the payments for large purchases and not for day to day "overheads".

I know that the major charities here were noting a couple of years ago that people were developing a sense of entitlement regarding luxuries (ie, paying bills for cable TV, gym memberships etc first and then seeking help for food assistance from welfare organisations) but I didn't think it was particularly widespread.
posted by Lolie at 11:29 AM on July 15

Very few married people with kids that I know have savings because they spend all their money on their children.
posted by dfriedman at 11:30 AM on July 15

Very few married people with kids that I know have savings because they spend all their money on their children.

Another anecdote: most of the married people with kids that I know DO have savings because they know that putting money aside for emergencies (or college funds or retirement) is more important than getting Billy the latest PlayStation game.

I think the bigger problem is the Western consumer society. We want want want and we buy buy buy with very little regard as to how we're going to pay for it. I know I personally wasn't taught how to manage money. My parents were well off and just gave me money and stuff when I wanted it. When I went away to college and got my first credit card (those free gifts were so tempting for a 17-year-old with no money skills!) I quickly racked up hundreds of dollars in debt. Luckily, I started dating a guy who was very responsible with money and he taught me how to manage mine. I married him, incidentally. And we're teaching our kids how to live on the money they have right now, not on the money the credit cards make them think they have.

So perhaps it's a combination of a consumer society and little-to-no knowledge of how to live within one's means.
posted by cooker girl at 11:43 AM on July 15 [2 favorites]

I have been shocked at the number of people I know who have had to drastically change their lifestyles (for example, moving back in with their parents) after being laid off because they had no savings to fall back on. And I'm not talking about moving back in after a year out of work, but within 2 months because unemployment and their savings (if they had any) was not enough to pay their bills. I know some people who'd have to move by the end of the month.

Sadly, I do think it's the norm among my peers.
posted by peanut_mcgillicuty at 11:43 AM on July 15

To be honest I think my prudency comes from the fact that I am a fairly recent immigrant and have 'no recourse to public funds' should I lose my job. I don't have the safety net that others here in the UK do (and le morte de bea arthur: housing benefit doesn't cover mortgage payments, only rent).

I've always used my credit card for day-to-day spending (rewards!), not large purchases (I've never carried a balance) - those I use savings for. I was taught financial management by my ex, a major tight-arse Aspie, for which I will be eternally grateful.
posted by goo at 11:46 AM on July 15

In the United States, this is not too uncommon. Look at how housing foreclosures hit hard even before the economy was seriously rattled. People could not make the payments on their house if the payments went up at all, signifying a reliance on home equity in place of liquid savings.

On the other hand, with unemployment reaching 10% in many areas, people are figuring out how to make do. People who adjust to less excessive housing costs find that when things get really rough, they can cut expenses drastically enough to make do on what they do have. They don't get much of a choice sometimes, credit cards are being scaled back or canceled with little to no notice.

A few Canadian friends of mine tend to live on financial edge as much as many Americans, although I cannot say whether this is representative of Canada as a whole.

For a more personal anecdote, I worked at a pawn shop some time ago. This was during better economic times. Freelance painters and carpenters would pawn their tools. Yes, the tools they required in order to get jobs that would pay money. If they didn't need particular tools for a certain job, they'd pawn these tools until the job was finished and they were paid. If one job went sour, they could be in serious trouble. We were well aware that if tools were not picked up fairly quickly, they would "drop" past the loan date and be marked for sale. Used tools do not sell very well, so the loan amounts were almost ridiculously low. If tools dropped, the contractors almost never came back in the store. They knew they'd get worse offers on their stuff, and they never had the cash to buy it back.

The payday lending side of the store was worse. I wouldn't touch that part. I'll just say this much. There was a doctor in there who would take the maximum loan every time in order to pay his receptionist.
posted by Saydur at 11:47 AM on July 15

dfriedman, that scares the hell out of me, because to me, you should be spending money on your children by putting it in savings. Someday they're going to need to go to college, or get into some sort of trouble, and might need to look to a parent for financial support. What do you say then, "Sorry kid, I spent it all on those action figures you loved so much when you were five"?

But yes, people are phenomenally stupid with the way they spend money, in general. My parents and some of their peers still have a "no standing credit card balance" policy, but many of my peers in the 25-35 age range just blow through money and credit.
posted by mikeh at 11:48 AM on July 15

This thread about Dreamhost accidentally billing people twice/early/etc has a lot of relevant action/reaction posts about people living near the brink.

Great link. It reveals a lot about how different banking systems and credit reporting systems can have totally different outcomes when mistakes are made. If nothing else, I learned that when Americans use the term "auto-pay" they're talking about something different than we are and over which they have much less control (I can cancel or suspend a direct debit with 24 hours notice and suspend or cancel an auto-pay up until 6am on the day of transfer). I've always been aware that the systems are different, but never really thought about how that affects people's day to day lives before. It's fascinating.
posted by Lolie at 11:50 AM on July 15

My parents were well off and just gave me money and stuff when I wanted it. When I went away to college and got my first credit card (those free gifts were so tempting for a 17-year-old with no money skills!) I quickly racked up hundreds of dollars in debt.

cooker girl's comment highlights one of the main issues that I think plague people in my age range. Credit cards have been marketed heavily among the people who are least likely to be able to pay them off. College students should be out trying to find a credit card if they have a legitimate need, not being marketed a credit card because it's nice to have.

I remember seeing so many "sign up for a credit card, get a free t-shirt" booths during my college years (1999-2003) that I was recently joking with a friend that you could easily set up an identity theft booth with the same setup and people would still come up and fill out the application sheets. Want a witty t-shirt? Just give me your name, address, social security number, mother's maiden name, and email address please! Most kids wouldn't even notice if they didn't get a card in the mail.
posted by mikeh at 11:53 AM on July 15 [1 favorite]

This is pretty common, even among otherwise-intelligent folks. Many of my peers went into debt to pay for school, with the expectation that they would have much better jobs out of school that would offset the debt service. Now, partly due to the recession, and partly because everyone can't be above average, these folks are struggling to maintain the lifestyle they were expecting on much lower wages. They simply can't save without reducing their quality of life. There's a sense of entitlement, a desire to have what everyone else in their peer group seems to have, and poor impulse control exacerbated by a culture of instant fulfillment. It takes specific training to manage money and lifestyle that many people today no longer get from their parents (and they're unlikely to get it anywhere else, either).
posted by Chris4d at 11:54 AM on July 15 [3 favorites]

Well, not to delve too much into economics here, but I don't think the problem is consumption per se.

I think the problem is that many people choose to finance their consumption with debt, as opposed to cash. They do this because they see their neighbor or friend buying a new car or a new TV, and never stop to consider that perhaps their neighbor or friend is buying that new car or new TV because their neighbor or friend earns much more than they.

This is the classic "keeping up with the Joneses." When you're a highly paid lawyer dealing with even wealthier investment bankers and celebrities all day, you have an incentive to finance a life you cannot afford. See Marc Dreier.

As to the point of savings as "spending": not really. It's good to save money but money you save is not money you spend.
posted by dfriedman at 11:55 AM on July 15

Kind of. My wife and I work 9-5 jobs (Often with lots of extra hours. I was doing 9-11 for awhile, she's more like 8-6). Between student loan bills and rent and utilities and groceries, we've rarely had more than 1/2k in our shared checking. That's about a month, maybe more if we stretch.

The student loans are the killer, man. I always goad my wife into brushing her teeth by saying, "We don't have money for cavities!", which as much as I mean in jest, is probably also true.
posted by GilloD at 11:58 AM on July 15

Aside: GilloD, would the IBR student loan repayment system work for you?
posted by runningwithscissors at 12:05 PM on July 15

The student loans are the killer, man.

The repayments on these are tied to a percentage of income here, although we are slowly trending more towards American style "supplement" loans but that's an individual student choice. The average student will leave university here owing in the tens of thousands of dollars but repayments don't start until certain income thresholds are reached so you'd definitely take that into account when planning your financial lifestyle.
posted by Lolie at 12:07 PM on July 15

Gosh I might touch a raw nerve here, but I blame the education system.

How do otherwise very intelligent people end up awash in a sea of debt? Bankrupt, teetering one paycheque away from insolvency and perhaps homelessness?

Simple. They don't understand the basics about money; a budget, living within - markedly within - one means, and the power of compound interest.

Especially the power of compound interest. If you're a saver its your friend, the way to a better life, but if you're a spender then over a sufficiently long horizon it is the destroyer of your world.

How can people graduate from high school, let alone get two or four year degrees, Masters and even Doctorates without understanding the basics?

Perhaps I'm painting using a broad brush here, but I've personally known individuals with those levels of educational attainment, who were otherwise wildly successful at their careers but couldn't track outgoings, let alone plan for a comfortable financial future, to save their life.

I'm a banker by profession who teaches finance part time and if I can I try to help folks out with their financial problems. Word gets around. I've helped lots of people. And thats ok. But I've seen this problem a lot.

On the surface it is over consumption, without a doubt. But thats just the symptom.

The underlying disease? Ignorance of the basics of personal finance.

And I blame the education system.
posted by Mutant at 12:10 PM on July 15 [2 favorites]

And I blame the education system.

I blame the cost of the (US) education system!
posted by everythings_interrelated at 12:24 PM on July 15 [1 favorite]

The underlying disease? Ignorance of the basics of personal finance.

And I blame the education system.

My daughter and I had this conversation the other day. When I was in high school we had a compulsory subject called "Consumer Education" which taught a whole range of life skills - preparing a tax return, interest, basic consumer and tenancy rights etc. There was nothing similar taught during her high school years - the focus for compulsory "lifestyle" units having shifted more towards health related stuff like contraception, stress management, conflict resolution, and the like.

It's definitely a generational thing, too. My parents lived through both the Great Depression and post-war rationing, so I was raised in a generation which was scared of any debt other than a thirty-year mortgage (and you needed a hefty deposit and the repayments to be <2>still use lay-by for items I can't afford to purchase immediately (love those layby until Christmas Eve toy sales which are on at the moment). So I think there is an "instant gratification" dynamic at work and that people probably do continue living their current lifestyle even when their income drops significantly much more than in the past. Cutting spending seems to be regarded as a last resort now rather than a first option. Which is kind of ironic given that there's a big economic downturn pretty much every decade.

Also, many services which were once supplied on a month to month basis are now on contract, so I suspect the termination fees make people much more reluctant to cancel those services when money as tight as they are still going to have to pay for them in some way (although I've noticed many companies have lately been reducing the minimum contract period).
posted by Lolie at 12:24 PM on July 15

Should read :

(and you needed a hefty deposit and the repayments to be less than 25% of your income to qualify). I still use lay-by for items I can't afford to purchase immediately (love those lay-by until Christmas Eve toy sales which are on at the moment).
posted by Lolie at 12:27 PM on July 15

I'm pretty close to the bone and living paycheck to paycheck, but my consumption rate is actually pretty modest.

I've had a pretty sizeable debt load since 2002 -- but not because I blew my money on shoes and night clubs or whatever. Instead, it was due to a perfect storm of 3 things:

1. 2001 and 2002 was my last years for paying off student loans. I had opted for a graduated payment schedule -- which meant that for the first couple years I had only $50 monthly payments, which gradually got bigger and bigger until for those last two years, they were about $160 a month.

2. The department I'd been working in at my job had been wiped out en masse, and I lost my job.

3. 9/11 happened, and lots of major corporations were jumping ship and leaving New York temporarily. They did so at EXACTLY the time I was signing up at temp agencies and asking, "Hi, does any big company need me to work for them?....they're not in town any more?....uh....okay...."

So I had an increased expense at PRECISELY the time I had a decrease in income. My annual income dropped 75% from 2001 to 2002.

But -- I had a high credit limit on my credit card, and I hadn't used it all that much. So -- I made up the shortfall in income by taking out cash advances on my credit card, because I didn't know what else to do. So my credit card was being used to pay for things like rent and utilities, rather than shoes and clothes.

And I have been living with that debt ever since, and my pay rate sucks in general, so what little I've been doing to pay off that debt has been grindingly slow. And losing my job again in January also didn't help either (I had to hit my credit card up again once this month, which brought the limit back up again).

So yeah, some people are 30 days from being broke because of poor choices on their part-- but there are also some who are 30 days from being broke because of past run-ins with STAGGERINGLY bad luck.
posted by EmpressCallipygos at 12:28 PM on July 15 [3 favorites]

Sounds like the status quo in the USA to me. And yes, I fall into that category, thanks to the massive student loans that I not-so-wisely took out in grad school.
posted by chez shoes at 12:32 PM on July 15

dfriedman, that scares the hell out of me, because to me, you should be spending money on your children by putting it in savings. Someday they're going to need to go to college, or get into some sort of trouble, and might need to look to a parent for financial support. What do you say then, "Sorry kid, I spent it all on those action figures you loved so much when you were five"?

I don't think it's just action figures. People spend a lot of money on their children just to keep them safe and healthy. There are a lot of expenses for children that single people can't see. I have great health insurance, but my daughter got sick last year and I had to drop like $350 on just the medicine. That doesn't include doctor visits, tests, etc. Overcrowding of teeth, that's another 4g's for braces. Oops, I broke your glasses. And so on. We're not broke, but I can totally see how people could barely stay afloat without blowing their money on action figures.

I think some of it is education, but a lot of it just comes from the culture and temperament. For example, my daughter for some unknown reason just saves money. Loves saving it. She has a 4 figures saved up. We didn't raise her like that, she just ended up wanting to save like mad. I think many many many more people have the opposite. They're just wired to spend like crazy, and when the whole culture is telling you that's the thing to do, and there is a whole credit industry needling you on, well, it's like a trip to the Duff Brewery, hard to maintain control. I am not absolving people with $20,000 of consumer credit card debt of responsibility, but I don't think a class in high school where kids are stoned or half asleep will make a big difference.
posted by milarepa at 12:35 PM on July 15 [1 favorite]

I once had a period of very low income (self employed) and went into the red on credit cards to cover basic expenses. But over time things got better and it was all paid off. Now I keep enough savings to last me a year or two.

In a way, having to live off my credit cards was a great lesson. I got to associate debt with stress, worry and feeling like crap. Now I fight hard to make sure I never end up in that sort of state again. Unfortunately a lot of people don't seem to learn from pain, which strikes me as odd.
posted by wackybrit at 12:35 PM on July 15

A few years ago -- before the credit crunch -- I posted this response to a question about why in America, today's households commonly have two jobs whereas they previously had one. My response indicated that the average family would need to rely on credit, additional income for other sources (ie, additional jobs in the household) or both to afford an average life. Such reliance on additional jobs or credit doesn't appear to have been the case decades ago, but is common now.

The primary culprit at that time appeared to have been wages not keeping pace with the abrupt rise in housing prices. While housing prices have fallen some since, housing costs still remain high, unemployment has risen, and wages have remained stagnant. Relying on credit is the status quo because the average worker has trouble finding a job (or jobs) that can not only cover the basics and leave money to spare.

In discussions about the credit crunch, people like to talk about how people use credit irresponsibly, and how it's gadgets, gizmos and bad decisions that put people in the hole. The statistics tell another story, that low wages, a high cost of basic needs (shelter and transportation) and sometimes unexpected medical expenses are the things that have really driven the reliance on credit -- buying the gadgets and gizmos just tends to dig the hole in a little further.
posted by eschatfische at 12:44 PM on July 15 [5 favorites]

One of the most dramatic things that gets me every time I return to the US from Australia is how in-your-face the pressure to consume and buy is. It's an almost physical presence that I don't really feel when in Oz. Between billboards, commercials, ads in magazines, editorials about how to get rich, live the good life etc., it is surrounding and pervasive.
It's almost comical the way it affects me. Whenever I have arrived in either destination, it takes a few weeks for the mindset of the place that I have just come from to wear off. In Melbourne, it takes me a few weeks to get into my zen love and family are what matters, not being rich, owning everything, etc., etc. When I return back to the states, I am able to hold onto that only for a short time until the urge to buy a building, invest in real estate, make some money, start a business, buy something shiny, etc takes hold.
I may be influenced more than some by this, and I'm not saying that there isn't some of this same pressure in Australia, just that it hasn't reached the level there that it has here (Unfortunately, it seems like they are heading more and more down the same road as the US in this regard, though).
I think most Americans don't often get a chance to separate themselves from the onslaught and so find it difficult to understand just how much this constant pressure to spend money influences our behavior, and how much we're being brainwashed into believing that happiness is something that can be bought. I know people understand this in the abstract, but to actually be able to feel the consumerism being foisted upon you at landing at an airport is eye opening.
posted by newpotato at 12:46 PM on July 15

According to the newspaper this week, in New Zealand half of all workers would only last a month.

Almost half of working New Zealanders would only last a month on their savings if they lost their job, a new survey shows.

More than a quarter say they will need to use their credit cards to pay bills in the coming quarter.

People in the 18 to 34 age bracket were particularly vulnerable, according to Dun and Bradstreet's survey of consumer credit expectations released yesterday, with 55 per cent only able to survive for four weeks if they weren't working.

I'm not sure how home ownership ties into this. I could last a LOT longer than that, but we want to buy a house soon, and that will require tying up all our capital, at which point it will take some time to build up a cushion again. No doubt there are plenty of people who have significant equity but no easy way to draw down on it.

Dunno about other countries, but here banks are positively predatory in giving university and polytech students free overdrafts, credit cards, and other perks, good for the length of study plus a bit longer. It gets you hooked on debt before you even have a job. When I was 18 I'm afraid I couldn't conceptualise how a $500 overdraft wasn't actually a gift to me of $500. How I wish I could go back in time and join my Dad in giving me a Clockwork Orange style re-education.
posted by i_am_joe's_spleen at 12:51 PM on July 15

Here in Poland, things are much the same - credit is becoming a lot more popular, even though interest rates are quite high - though I think the amounts of money being borrowed in "real" terms are smaller. Food, housing, education and health care here are comparatively cheap but are becoming more and more expensive. My salary does not go as far as it did in October or November, for sure - each month I save about 25% of what I earn, but this does not amount to much more than an emergency fund as I don't have access to credit cards.

We also have the additional burden of a very variable currency. The złoty's value has changed a LOT in the last few months...on August 21, 2008, one could "buy" one euro for 3.22 zł; by February 17, 2009, it took 4.85 zł - that's the most it's been in almost 5 years.

That's a massive change for people whose debts are denominated in euros (many car owners and homeowners here have loans in euros) but earn in zł, or for people who "saved" for that vacation abroad and now can't afford it. I was actually abroad during February, and had been budgeting based on a 4.2 zł:1 € exchange rate; needless to say, my vacation got more expensive very quickly.
posted by mdonley at 12:54 PM on July 15

There still is a great high school course to cover stuff like this (at least here in Ontario): it's called Math for Everyday Life. How to do your income tax, how to budget, how leasing a car works, the landlord tenant act...all awesome stuff!! The problem? It's geared towards "general level" kids, i.e. not going on to post-graduate studies, so not a lot of kids take it. Too bad, because it's a great course.

I wish we could save more. Having a kid has made me want to stash as much money as possible away for a rainy day.
posted by Go Banana at 1:14 PM on July 15

Just to throw in another anecdote, for about five months last year my husband was out of work. At the same time, due to the slowing economy, I went from full time to 20 hours a week, if I was lucky. In that time, we ran through all of our savings and ran up our credit cards. Luckily, he did find work, and I went back to full time plus received a promotion. Since then, we've been throwing money at the credit cards to get rid of the balance and trying to regain our cushion. We've also paid off the last of the school loan and our car. Living so close to edge makes me never want to be in that situation again, but if disaster struck right now, we would.

Additionally, most of the people I work with (not including the two college students who receive assistance from their parents) live paycheck to paycheck. For example, a man who received the same promotion I did used his bonus check to buy a big screen TV. Just this week he was borrowing money against his paycheck to pay for a copay at the doctors. A $20 copay. I'm the only one at my branch with a 401k, including my salaried managers. I discovered this fact when I was talking with one of the HR reps. She said that in this past year, there have been only a handful of sign-ups in a corporation of around 1,000 employees. I was talking to another coworker and I asked her if she was considering a 401k and she laughed. She said she couldn't afford to take any money out of her paycheck. She too lives paycheck to paycheck, but she frequently eats out on her lunch.
posted by lizjohn at 1:32 PM on July 15 [1 favorite]

One thing I do agree with is that it's difficult to have irresponsible borrowing without irresponsible lending - there's a limit to how much of a hole you can get yourself into financially if no-body will give you credit.

It's certainly been more of a problem here since lending was substantially deregulated, so economic policy also plays a part in the problem (lenders here are now pushing for US-style credit reporting and the government's making very few concessions on that, putting the onus back on individual lenders to be more conservative in their risk assessments). I wouldn't be surprised if whatever concessions they do eventually make in terms of privacy legislation are counter-balanced by a tightening of the the regulations related to revolving credit (which seems to be the particular financial services sector in which there's a major problem).
posted by Lolie at 1:38 PM on July 15

Yes, speaking for myself. However, I'll admit straight out: to a degree it's a choice. I got into debt because of my teeth: $25K worth of work (root canals, extractions, bridges, crowns, surgeries etc., etc., etc.). I put the $25K on credit cards. That was 6 years ago. I've paid off some, and I'm down to $13K in debt. Remarkable: since 6 years ago, I have not added one penny to my debt level, only paid down. Now the bad: I don't save, because I consume, and I choose to do so. Yet (cognitive dissonance, thank you, what would I do without you!) I don't consider myself an extravagant spendthrift. I spend at the cost of having 0 savings. I like to travel, and travel is expensive. I like my hobbies, which involve expensive computers and photography equipment. I buy a lot of music, because I can't live without it (subjectively). And my income is erratic - film business - gobs of cash for short time at work, then nothing for very long. Basically, I'm a basket case financially, while fully aware of the consequences. If I fall into financial disaster (very likely), it'll be no one's fault, but my own. What if I had a Mutant nearby, to sit me down and work out a plan? Great in theory. Unfortunately, the problem is much deeper: not so much lack of knowledge (though probably that too), but priorities which don't align with financial security. What to do? Haven't figured that out.
posted by VikingSword at 2:04 PM on July 15 [1 favorite]

It's definitely not just an Aussie thing. Almost everyone I know here in Michigan, USA is in that boat... or fell out of it months/years ago. Even the few savers I know wouldn't make it much longer at this point, because all that savings was in now-tanked investments and houses.

In fact, the only local person I know who has the cash reserve to survive for (many) years is a stereotypical cash hoarding miser, who has been hiding his true income for decades so he couldn't be forced to pay taxes or contribute more to the upkeep of his children. Bought a lovely house for cash recently, still doesn't care how his kids or grandkids live... certainly an example to be emulated by all.
posted by Pufferish at 2:18 PM on July 15 [1 favorite]

I'm currently in that boat, and God, I'm scared. I spent 4 months of the last financial year out of work, and I'm supporting my parents who are also out of work and out of money. I *had* six months worth of savings, this time last year. Unfortunately ... things went as they did, and well, that cushion is rapidly approaching zero.

Working on getting through the next couple months by trying to find extra work and such.

I consider myself financially prudent; many of my peers in the same situation would have been out on the streets. But if no other disasters happen, it's still going to take me a year to recover and get to the point where I have enough savings to sleep well at night.

But life goes as it does; somehow, I'll survive, even if I end up working 3 jobs, or living with the in-laws.
posted by ysabet at 3:24 PM on July 15

I think that this depends as much on background and life experience, and on individual circumstances, as on financial systems and generational differences. I grew up in a relatively poor household with WW2-era parents, and so did my partner. Nobody in either family had a credit card and so we learned that credit was not normal; we also learned you can't have something if you can't afford to pay for it. The other big factor was that we both had to move out of home to go to university, as both our families lived in the country and they could not afford to help us out financially. We were living below the poverty line and quickly learned economy and that if we couldn't afford it, we didn't get it.

In adulthood, we earn about $120k between us. I only got a credit card because most hotels refused to let me book without an imprint, and I need to travel for work. My partner still doesn't have one; mine has a smallish limit and I pay it every month. We have only one car and our only debt is a mortgage on a small, shabby, but cheap home, bought back before the days when the bank would have blithely lent us half a million anyway. We don't have kids and I think that is a huge reason why we have some savings. We do indulge, we spend money on travel and books and DVDs and tech toys, but on little else. We both have about 6 months' worth of savings in our separate bank accounts.

There was no financial/life skills education when we grew up and neither of us was taught that by our parents. We just got into the habit of being prudent from circumstances, I guess.

I do know some people my age (fortyish) who are in pretty dire financial straits. One is paying two lots of child support to two different ex-partners and has just fathered another child; he lives in a bungalow in his parents' backyard. One got divorced and spent up big to furnish a new home, had over ten grand in credit card debt, then had to give up their job due to health problems. One spent large periods of their lives living in their parents' home and being supported by them, and when that situation ended they got into difficulty because they'd never had to worry about budgeting and insurance and so forth. A couple of others have just never really had stable, well-paid employment situations and as a result have led a pretty crappy hand-to-mouth existence. So I can clearly see that it can happen to people through any one or combination of bad luck, circumstances, poor judgement, self-indulgence or bad timing.
posted by andraste at 4:35 PM on July 15

It is very common in the US. There are two kinds of people this happens to:

1) People who don't get paid very much and can't really help it.

2) People who could be saving, but spend money on nice things instead.

I see a lot of derision in this thread towards people in case (2), but not a lot of sympathy for the working poor, students, and young people just starting out. It isn't always a failure of "personal responsibility" when someone is out on the street a month after being laid off.
posted by twblalock at 4:54 PM on July 15 [2 favorites]

I saw some statistics from the (Australian Bureau of Statistics) recently that suggested that household debt is at 160% of disposable income in Australia. This figure is up from 38% in 1980. It's a massive attitude change over that time and it's utterly frightening.
posted by prettypretty at 5:12 PM on July 15

I'm wondering, hasn't it always been this way, for people in the lower socio-economics groups, leastways? The whole idea of 6 months of savings is kind of a luxury. I know I have to choose regularly whether to spend on maintenance of our biggest asset (get the gutters fixed, get the outside painted - it's flaking) or to put money in the savings account for just in case. We don't lead a wild excessive life. Far from it. The only debt we have is house & car (and the car is second hand). We don't go out and party, our one television is not large, the kids have to work for their pocket money which is pitifully small. It's not all about excess and consumerism and waste. Sometimes you just don't start off with very much in the first place.
posted by b33j at 5:19 PM on July 15

... According to Third Annual MetLife Study ... Half Of Workers Are Just Two Paychecks Away From Not Being Able To Pay Their Bills

You often see this "X paychecks away" metric in the US media, but it had little impact during the housing boom, when homes were appreciating faster than anyone could reasonably save. In some households, this actually made the house the primary "breadwinner".
posted by dhartung at 5:22 PM on July 15

I'm wondering, hasn't it always been this way, for people in the lower socio-economics groups, leastways?

Not to this extent. Revolving personal credit basically didn't exist in Australia until the mid-1970s and even then it was pretty hard to get. It wasn't even available to those with low incomes or unstable work histories until relatively recently.

Previous generations really didn't have much option for getting further in debt once they were already in financial trouble - they could default on a personal loan or a store charge account but they had few options for accruing new debt, so they pretty much had to go without, restructure their finances, liquidate assets, etc. Now, it's possible to accrue literally tens of thousands of dollars more debt after you're in already in financial trouble if your available credit lines are high enough and you've done nothing which flags the system to suspend your credit.
posted by Lolie at 5:41 PM on July 15

[few comments removed - this is supposed to help the OP answer her question, not start a discussion about the topic generally]
posted by jessamyn at 5:45 PM on July 15

The debt isn't the problem, it's how it is used. Without the availability of credit, the world would be a very different place. Nothing wrong with a little bit of leverage to get ahead. After all, it would realistically take half a lifetime to save for a house if you had to pay cash. And that's if you had a good enough job to be able to pay rent AND save.

I'd rather go a hundred or two in debt than have to beg for food. Or get evicted. That's the positive of credit- you have more cushion. You can make wise investments. And people with money have something profitable to do with it- loan it out.

One of the problems is that a lot of young adults now have never experienced anything but a prosperous, runaway economy.

People don't plan or consider negative possibilities.

And yes, having 6 months of liquid savings IS a luxury. It is one that still has to be worked for.

I wonder, just for grins, what the historical numbers for these "x weeks away from bankruptcy" stats are. I'd bet that over time, they are going down.
posted by gjc at 5:57 PM on July 15

Ontario (Canada) reporting here that yeah, paycheque to paycheque is the norm for most people I know with incomes ranging from $20,000 to $200,000+. Some of it is over-consumption, but also a VERY familiar theme I see in couples living on the edge is one partner not financially pulling their weight and actually spending the other partner's savings (sometimes directly, sometimes indirectly by incurring debts that must be paid such as ignored parking tickets that snowball into a $1000 and prevent the yearly car registration). Some singles are savers and some are spenders but at least no one else has access to their bank accounts so they alone are responsible for their financial health. It isn't always true that two can live cheaply as one.

For myself, I found three years of university qualified me to work for minimum wage in a bookshop in a similar recession so I went back to school for two more years for a grand total of $40,000 in students loans (of course I worked full-time while in school) and I was then qualified to earn $20,000 a year (and it took several years of working two or four jobs to pay the loans on top of my basic expenses). And my friends were envious! Although I now have a "good job" earning about $50,000 if you use the rule of thirds (one third of income on housing) that would not be enough to pay rent on a one bedroom apartment in my area (and I have three children so it would be a bit of a squeeze). Twenty years ago $50,000 was a good wage but all other costs were much lower. Wages have simply not kept up with realistic cost of living (pasta - one of the cheapest meals out there has doubled in price in the last year alone, gas has gone through the roof - and back down a little, and basic phone service has quadrupled in price over the past twenty years).

Living on credit is what some people do, but then there are huge numbers of people that have no access to credit because of poor credit scores and simply do not have the earnings to build up savings.

I come from a long line of poor people and you might want to rethink your assumption that this is a recent phenomena. Debtors prisons, workhouses and death by starvation on the streets or freezing in an unheated house are just a few generations back for my people.
posted by saucysault at 9:07 PM on July 15

If you are looking for a developed country which bucks this trend, at least to some extent, then France would be a good candidate. If you look at this table of personal savings rates by country then you can see that the French were saving nearly 12% of their earnings in 2004 (vs about 3% in Australia and 6% in the UK for example) - one of the highest non-asian rates. France also has a very cautious banking system where an un-authorised overdraft can get your account frozen for a few months and where credit cards are rarely issued or used. The Economist recently speculated that France appears to be having a comparatively benign recession at a time when other countries are adapting a number of the centrist measures that they previously mocked it for.


Personally I think there is a difference between the simple tendency to live hand-to-mouth and what happens to this tendency when you combine it with a debt facility. Humans have evolved to hunt and gather in conditions where there are times of plenty and times of drought: just look at the way our bodies store any excess calories as fat whether we like it or not. Oddly the 30 days that the article says people are from being broke is similar to the 30 days after which they would be dead should all food run out.
posted by rongorongo at 2:58 AM on July 17