Both Democrats and Republicans want you to think that this is The Most Important Election of Our Lifetime, because if Democrats win the terrorists will detonate a bomb in Your City later in the week, and if the Republicans win then citizens will be out on the streets standing in bread lines because of lower pay and no minimum wage increases.
People are running out of money. They cannot pay their bills. People aren’t saving like they used to. Things must change. You must vote.
The recurring theme is the same as it is every even-numbered year: Life is more terrible than ever. (hear the eerie music?) buh-buh-buuuuuh!) Yeah.
But is it really?
I took a look at this Forbes article on how the Average American is doing today compared to the middle of
48% of Americans believe they're worse off than their parents were.
Troubling…but vague. However…
Mr. and Mrs. Median's $46,326 in annual income is 32% more than their mid-'60s counterparts, even when adjusted for inflation, and 13% more than those at the median in the economic boom year of 1985. And thanks to ballooning real estate values, average household net worth has increased even faster. The typical American household has a net worth of $465,970, up 83% from 1965, 60% from 1985 and 35% from 1995.
The article goes on to say that people may be dissatisfied because of what Milton Friedman calls Permanent Income Theory (PIT). Be warned—the preceding link will take you to Wikipedia page on boring economic theory. For those who don’t salivate at reading ramblings that use terms like “propensity to consume,” I’ll save you a bit of time. In simple terms the PIT means people measure their “better/worse off” assertions based on how they were doing a couple years ago (not a couple decades). They couple that idea with the future money they’re “going to make” with little consideration to how the cost of living will increase as well. Thus, if you expect to have 5% pay increases over the next 3 years and you only receive on average 3.5% increases, you’ll tend to be unhappy (even though you would have more spending power than you did before).
In addition, people compare how they’re doing to their rich neighbors and famous people—which is a poor marker. We always advise against comparing yourself to the Joneses. Seek to make enough money to pursue your dreams and to help you to achieve financial independence, and do not look for acceptance among your neighbors or what you see on TV. Who knows, they may be trying to impress you. Contrary to popular belief, most people are doing OK. For you mutual fund owners out there, if you’ve diversified well and solidified in index funds, you may realize that long-term, you’re doing pretty good.
Finally a word on this permanent income thing: one thing people do (without thinking properly) is that they will make more money in the future and they bank their current purchases off of future income. The trouble arises when that doesn’t happen. It’s like when people accept one of those dog-awful Interest-Only or Adjustable-Rate mortgages, fooling themselves into thinking that (a) they will invest the extra money they have to work with or (b) their adjustable-rate mortgage will adjust down. Remember, very few companies set an interest rate and then say “You know what? Let me adjust your rate down for you so I can collect less money… Cause I just love making less profit!”
Life hardly ever plays out like we expect it to. People have kids. People buy 40-inch flat screen TVs and new cars. People get hurt and sometimes have health issues they never saw coming before. So make responsible decisions and don’t listen to the negative hype machines out there. Oh yeah…go vote too…I guess. See you next week.
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2 comments:
As always this is good advice. Mostly common sense stuff, but then again sense ain't common, right?
I'm a perfect example of this, I've fallen victim to pretty much all of the pitfalls mentioned in the article in some form or other, usually on a smaller scale than the examples. But I agree whole-heartedly that the biggest problem is perception.
I constantly struggle with the feeling that I need to be making more money to support my lifestyle, instead of adjusting my lifestyle to fit the money I'm currently making. It's usually because I've convinced myself that the stuff that I currently own is somehow not good enough... I'd blame advertising, but seeing as that's the field that I work in, it seems as though I'm part of that problem too!
I'm the same way in some things bruh. Advertisers are a smart bunch I tell ya. that's why they get the Big Bucks though, they know how to make people feel inadequate unless they have the latest thingamajig.
But, we always learn at some point, right?
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