“The actual net worth of ordinary Americans is sliding into a sinkhole. Don’t allow yourself to be confused; net worth is not simply what is left after you subtract your debts from what you own. The real value of your financial worth is the purchasing-price power available in the marketplace after you liquidate all your worldly possessions. Forget about your borrowing abilities; the sky is the limit is a major contributing factor to this tornado. It just doesn’t add up. Factor in the underlying underreported inflation, look at your after-tax (from all jurisdictions) income and, if you are honest with yourself, ask if you can afford to buy your own house?” ~Sartre
Investors party on as the stock market soars above 17.000, and mainstream media reports the welcome growth in the equity markets as further evidence of economic recovery for the United States. But since when does telling people what they want to hear make it so? Self-delusion, in this matter, is entirely unsustainable.
The financial institution, Bankrate, did a survey in December 2014 (published January 2015) to learn more about the fallback plans of everyday Americans, should they experience an unexpected expense such as a $1000 trip to the emergency room or a $500 car repair. As you probably already guessed, the survey results tell a different story than the media about how the economy is doing.
The good news first: 38% could pay their bill right away, including from savings. The remaining 62% could not. This comes as no surprise to those who find themselves “cash poor” living paycheck to paycheck. Of this remaining large group, 26% said they would cut down on their spending in other areas, 16% would hit up their friends and family for a loan, 12% said they would put it on a credit card, and 8% said “other.” Despite the 26% who said they would cut their spending in other areas, it is not far-fetched to consider that most, if not all, of the 62%, at some point, had to borrow some amount to cover this extra expense.
On one hand, Bankrate spills the beans on household budget reality, but on the other, their banking-business model leads not to solutions but rather to the same vicious cycle of credit and debt. Do you think Bankrate’s financial planning department provides customers with the fact that the monetary system is based on debt? And because of that fact, money is now only worth 4 cents (at the most) on the dollar? And do they tell their customers that because of the ongoing loss of purchasing power at the register they must totally revamp how they earn, spend, save and invest – not just pinch pennies and put money in their 401(k)?
I seriously doubt it.
The propaganda of economic recovery has only made things worse for families; but since consumer spending is 70% of the Gross Domestic Product (GDP), facts pale in comparison to the perceived need of getting people to spend more. Economic-recovery propaganda also keeps people just satisfied enough so as to minimize the risk of them finding the man behind the curtain: a dying monetary system.
So while Rome burns, Nero fiddles, and the 99% are left thinking that their lack of ability to save is solely an indictment on them, which, in the biggest picture of how money works, is only partially true. In the New-Normal economy, if to thrive into the future, seeking an understanding of the big picture is ground zero for financial IQ that makes a difference in our personal lives.