How much is the average American willing to pare back?

Great Debates
1

With all the “economic woe” threads, it seems appropriate to ask this question. I think most intelligent people have figured it out: Over-consumption is not only bad for the environment, but it is bad for the economy. Buying too much house, too many cars, loading up all the credit cards so that Christmas this year will be perfect…this is partially why a lot of us are screwed. I say partially because Americans are not only trying to keep up with the Jones’s, but also compensating for the shortfall between their wages and their own productivity. If a person works their ass off all day long, they feel entitled to some things. They are to blame if that sense of entitlement makes them take on more than they can chew…but that sense of entitlement and that feeling of deprivation came from somewhere. They were not created in a vacuum.

Anyway, we know we can’t wait for a messiah to come down and create jobs and raise salaries. If we are truly entering another recession, I suspect it’s going to make the last one look like good times. I also suspect that we aren’t going to rebound back to where we once were…that the days of over-the-top consumerism are over for the most of us. Most of us are going to have to pare back our expectations and sense of entitlement and redefine what “middle-class” in the US means.

I know that I’m no longer expecting to make more money than I make now. I make the median for someone at my pay band as a state employee. I’m fine with this. I know I’m more credentialed than the average employee, but I am satisfied with where I am financially so I don’t care to get what I’m “worth”. That’s an abstraction that my concrete brain cannot wrap itself around.

I will probably not ever own a house. I can afford to buy one even without first-time home buyer’s assistance programs, but none of the houses that I would like to buy are affordable (in a conservative sense), and the ones that I can afford look like nervous breakdown-inducing money traps. I’d rather keep renting in a cool area than extend myself into buying something in hopes that that neighborhood will one day be “up in coming” and I’ll be able make a sweet profit in the future.

When my old car breaks down, I will buy another old car…with cash. No car note for me. No more debt for me. Aesthetics take a back seat to functionality and gas mileage. I don’t feel entitled to anything more than that.

I don’t plan to go clothes-shopping for another year. I think the three new pairs of pants I bought at Target last week should get me through another year, and I have plenty of good clothes already. My shoes are even in good shape (no holes in the soles!) I will buy some nice tokens on my vacation next week, but I am treating “ancillary” shopping as a luxury, to be used very sparingly, whether they are truly luxury items or not.

I can’t spend any less than I already am in groceries, but maybe I could limit myself to going out to eat once a week rather than twice? I dunno…maybe I should just splurge a little in this department :).

I am adamant about keeping my savings at 30% of my net income, even with 5% of my paycheck now being diverted into my pension (which is a new development for VA state employees). I will always have some extra money floating around in my checking account after each paycheck, but the 30% is as low as I will go.

This sounds all good and well, but I’m not sure if my plans would be any different if the economy was booming. Also, I’m relatively young and single and childless. It is easy for me to limit my own spending and sense of entitlement, but I don’t have to deal with kids who are inculcated by mass media to give into wants and desires. So I’m curious how other Dopers are planning to pare back their lives, if they already haven’t. And I’m curious if there are people who think folks like me are part of the economic problem. If there’s lack of demand now, just think of what it would be like if everyone decided to live like they’re poor? The economic problems would just grow worse, right? But my feeling is why should I put my neck out to help the economy, as an individual, when the economy isn’t giving me any boost? My state has billions in surplus money that it doesn’t know what to do with. Why should I spend some more money to increase that surplus, when I know good and well none of the proceeds will go into my paycheck?

2

I just have to say that saving 30% of your income just sounds so unreal to me. I don’t think I’ve ever saved more than 10% and never for more than a few months. In more than just this way I represent the opposite of you: I have never had a steady job despite my education, my mortgage is cheaper than rent, I paid off my car, and student loans and all those same-as-cash financing deals out there are how I borrow beyond my means.

I can pare back more, but all the little ways in which I let my life nickle and dime me doesn’t seem worth the trouble to think about. I’d rather not worry about these things and focus on working and re-educating myself to get out of a rut. That said, I think what I have done in adapting to the economic times is I’ve gradually rid myself of most of my nonstudent loan and mortgage debt.

In general, I think you will find it a rarity for people to consciously pare back as long as their budget allows spending. It will be hard for couples and couples with kids to pare back because it isn’t just a single person’s decision to pare back in those scenarios.

On a side note, I honestly cannot figure out why you would even consider paring back. You’re saving 30%, go enjoy some gap jeans for Christ’s sake! I’m not criticizing or disagreeing with you, but I wouldn’t even think of it if I was in your intact shoes.

To answer your other question: I don’t think you are part of the economic problem. If people emulated your decision making (maybe not to the same extent) more, then the kind of insanity we came to realize was insanity in 2007ish would not be attractive to financing institutions to take advantage of.

Also, I don’t understand why you think your hypothetical increased spending would enhance state budget surpluses.

3

If the messiah comes back, then the world will enter the days of darkness. Then saving will not matter. So spend all you can now.

4

So you think there is no objective way to measure the consequences of individual economic habits on society at large and so leave it to faith and politics? Is politics the only filter by which you perceive things?

5

If what you predict comes to past, many people will revert to a pre-1980-2011 style of living; less conveniences and services- i.e. people ironing their own shirts, instead of going to the dry cleaners, more carpooling, mowing your own lawn, less eating out and more home cooking, more hand-me-down stuff for children, more long-term furniture, 1 tv per house, 1 computer per house, etc…

Our parents, grandparents and great-grandparents didn’t do these things because they were gluttons for punishment, but because it was what they could afford to do. Things like dry-cleaning and eating out were a big deal, not a minor luxury or common thing like they are now.

Personally, I don’t expect to pare back, but I’m in a relatively good employment situation- contract positions are a dime a dozen, so it’s not like I’d be out of work long.

6

I objected to MONSTRO’s use of messiah. It had no place in a thread about saving and cutting expenses.

7

Everyone knows the US will be using the Amero before the messiah comes back. That is one of the prophecies.

“You have USD? Great, I have zimbabwe banknotes. Lets start a fire”

8

I don’t agree with your assessment, most of the things you describe are not big expenses. Elizabeth Warren goes into this subject in her book the 2 income trap. The things people feel are causing all this debt (electronics, clothes, furniture, household goods, food, etc) are not. If anything most of them have seen their prices decline with inflation. I can eat out for $5 per person (vs $1-3 to cook at home, so not a huge savings), my cell phone cost me $20, I buy clothes for $10-20 per shirt or pants. That isn’t bankrupting me. A used computer is a one time payment of $50-100, health insurance premiums can cost $1000 a month.

She labeled (from what I remember) 4 big issues as the major causes of the squeeze on the working class. Health care, education, real estate and day care (since you have 2 parents working someone has to raise the kids).

The only solution I see is more families doubling up. Adults living together as roommates, adult children living with parents, elderly parents living with adult children, 3-4 generations in one home, etc. That will drastically cut into 2 of those expenses, real estate and day care (since someone in the family can raise the kids for free).

But health care costs still go up 5-10% a year, and premiums go up 10-40% a year. So I think health insurance will mostly disappear and become like cars were 100 years ago, a luxury item. That or we will have more basic insurance plans that work on a program similar to the UKs NICE program (which I support) which only promote treatments that provide X years of quality of life per Y dollars. Except the figures will be very low (maybe only 5-10k per quality of life year vs the 30-50k they spend in the UK). That is one of the reasons health reform was passed and health insurance companies didn’t fight it too hard (although they do fight the consumer protections hard), it supposedly will save private insurance from their death spiral where they price themselves out of the market by mandating that everyone in the US buy private insurance.

Education, I have no idea. Maybe more online classes, but now most people graduate with 25k in debt or so. Those numbers will be far higher in 20 years. Sucks because college is an amazing experience and ability to grow as a person. I’d hate for the next generation to have to miss it and do all their classes online.

There are a couple of other things that I would add to that list though. The death of corporate pensions (meaning people have to save more of their income in 401ks to retire with dignity) and the fact that our tax system has become much more regressive (FICA, sales, sin, and property taxes have all gone up dramatically in the last 25 years).

Anyway, families and strangers doubling up in the same house or apartment is probably the best way to cut living expenses, and what we will be doing.

9

Do you think you’re like most people in your demographic? I’m not an expert, but I don’t think so. I’m the only person I know–besides one guy that doesn’t have a cell phone at all–that has a pre-paid cell phone. Everyone else in my world, even my technology-challenged mother, have some type of smartphone. With plans starting at $60 a month. No one I know buys used computers, not even me. I eat out about twice a week and I’m frugal, not very discriminating. Good take-out food runs above eight or nine dollars. Even the combos at Mickie Dees are over $5.

I understand your point that it’s the bigger things that really make a dent, but those smaller things, for some people, really do add up. I know someone who only buys groceries at Costco. Which is fine if you have a family of six to feed, but a single person? Why does she need to buy three pounds of cherries, half of which she’ll waste because she’ll get tired of them? And there are people who feel that they must redecorate every three years or so, or buy a new car as soon as they pay off the older one. I know two women who are proud of their 300+ shoe collection. Some things are just patently ridiculous.

I don’t doubt that I’m a miser. But if someone is spending $5 a day for Starbucks, it doesn’t take a genius to calculate that out to be ~$1200 a year. Is that chump change? I dunno. I guess for some people it is and it’s not worth saving that much if their quality of life is negatively impacted. I know that’s twice as much as I pay in a year on electricity, though. Or total living expenses in a month. That’s “oh shit, the car just broke down!” money. Or “let’s go on vacation!” money. So to me, it’s not chump change.

10

Is cutting back really the right path for America? I thought America was all about getting out there and solving problems, finding new ways to live, figuring out new ways to succeed. Cutting back is basically not an American solution. I say this as a liberal! Liberalism has always been about expanding the potential of human lives and free choice, not contracting it, not just in the matter of sex and lifestyle, but in the marketplace.

11

Bush said go out and spend. He was a Republican so he must know what is best for us.

12

http://thinkprogress.org/politics/2006/12/20/9281/bush-shopping/ In case you have forgotten or are trying to pretend it did not happen.

13

Or just stay home, crank the heat, and turn on all the lights. But if you do go out, make sure you’re buying smokes, booze, and a few lottery tickets.

Right? That’s the responsible thing to do, or so you said.

ETA Here’s a link to something unrelated

14

If I have something that’s dry-clean only, it’s because I paid enough for it and I know it will be used again. That’s the only time I utilize the dry cleaners. I iron my own stuff. :razz: And since I have a sewing machine, I can hem my own pants as well.

Eating out is a once a week thing. I’d save 30 per cent if I had 30 per cent to save. Right now, every bit I save goes into something I’m saving for: dentist, eyeglasses, a kitchen table…

It’s myself and my son and almost $40k a year. His school tuition and our rent are things that cost the most. Next is food and utilities. No cable TV or car payment, but healthy food, a clean and safe living space and a good education for my son are non-negotiable.

I hope to move to fulltime hours in January. Then my yearly income is more like 55k. I plan on saving almost all of the increase (figuring higher taxes and health insurance and etc) because I can’t be a renter forever.

15

It’s difficult to get through the rest of your post when I see the words “over consumption” in a sentence. The natural question for people reading it is who gets to decide those parameters?

I don’t have cable TV or a (fill in the blank) G phone phone but I’m not living under a bush either. I have a house, a car, and a few toys collected along the way. It’s all paid for because unlike a politician I can manage a budget. For the sake of argument and based on the rest of your opening post I think you should define over consumption as living beyond one’s means at the expense of not planning for emergencies or retirement.

With that said, my income has been reduced substantially because of the economy. I expect it to rise considerably over time because of better jobs ahead but until that time my budget has been slashed to compensate for it. But given the opportunity, I will earn as much as I can within the amount of hours I’m willing to work and I will use that money as I see fit.

16

OK.

How about if you can’t pay all your bills at the end of the month but the bulk of your expenses are totally unnecessary?

Or maybe you pay all the bills at the end of the month, but have nothing for savings? And you could if you, you know, pared back a little, but there’s always something holding you back. Like a shopping spree. Or a new electronic toy.

Or you buy a quarter of a million dollar house but only make $50K? And you thought this was a good idea because you expected its value to grow exponentially?

These are indicators of over-consumption in my opinion.

Doesn’t seem like a head-scratcher to me, but YMMV.

17

FWIW I saved 27% of my net income last year, and 24% the year before that. I was able to increase my savings in 2010 because I finished paying off my car that summer.

I have a pre-paid too, and that’s the way I’ve always done it. I originally had Alltel, and only has to put on $10 every two months so $60 a year. After they were bought out by Verizon the cheapest pre-paid plan was $100 for the whole year, which I am still kind of ticked about because I don’t even come close to using $100 worth of minutes in a year. While I think a smartphone would be cool, I can’t justify the expense to myself.

I hate cooking and avoid it as much as I can. If I wanted to pare back the obvious way to do it would be to make my own lunch on workdays. My last job was at a college where employees could eat in the dining hall (buffet style, all you could eat, including drinks and dessert) for only $3, so it really didn’t seem worth making my own lunch then. I work at a different school now where I pay more (around $6) for a lunch combo on campus. It’s better and probably healthier food than I’d make for myself, but if I could make my own lunch for around $3 a day then that would save me around $66 a month.

18

This would have been a more reasonable post five years ago. To paraphrase Larry Summers, too much spending got us into this mess, but we need even more spending to help get us out.

19

I save 25%, and I don’t make a million or live like a pauper.

Pennies turn into dollars, and that is how you have to look at every cent you spend. It all adds up, and to quite a bit.

20

OK. Let’s say I believe this is true.

What am I supposed to buy? I have an mp3 player that plays 500 songs, and a laptop that gets me on the web. I just went to Target for some new clothes. I go to the grocery store every week so I can get my eat on. I grab lunch out occasionally and get take-out for dinner every Friday. What else am I supposed to do? What else do I need? If Uncle Sam wants me to buy a new car and a new house, then he needs to have a nice talking-to with Aunt Virginia, who writes my checks. Someone has to make the first move. Don’t know why it should be me when I have no motivation to change and a lot to lose.

During the Depression, there were campaigns to equate patriotism with spending. There were signs telling the employed to hire their unemployed neighbor for odd jobs. Don’t mow your own yard or do your own laundry! Hire the Johnson’s down the street to do that for you! If you don’t, you’re a selfish traitor!

Seems kinda crazy if you think about it. The consumers were supposedly at fault for the first recession for being greedy and over-speculative. Bus drivers buying million dollar houses! What were they thinking!? And now we are fault for the second recession because we’re being too frugal and cautious. Stupid people, trying to find satisfaction in what they already have instead of searching for it at the mall.

Why is the blame being put on us, the little guys, when the big guys are the ones who benefit regardless of what we do?