In 1901, the average U.S. family devoted 79.8 percent of its spending to necessities (food, clothing and housing). By 2002–03, spending on necessities had been reduced substantially to 50.1 percent. Since American families have been paying substantially less for necessities as time has gone on where has the extra money gone?
In 1901, the average U.S. family could allocate only 20.2 percent for discretionary spending while in 2002-2003 they could allocate 49.9 percent of total income for a variety of discretionary consumer goods and services... a 30% increase!
What happened was Americans started buying lots of stuff they did not need to exist.
In the 21st century, households throughout the country have purchased multiple computers, televisions, iPods, and phones. Americans have bought vacation homes, boats and expensive cars. Children go to summer camps, parents attended sporting events and theatrical and musical performances. We've joined health & country clubs and taken multiple vacations.
But just because something exists doesn't mean we have to go out and buy it. You can see by the chart below that over time our savings have decreased.
American's Personal Savings Rate 1959-2015
1. Keeping Up With The Jones (or Kardashian's) What is modeled to us daily are people living a life of excess. Back in 1950 or even 1980 we didn't have channel after channel of television broadcasting people behaving badly and throwing money around. We weren't assaulted daily with stories of "famous" people spending thousands in a night club, on a new car or on a beach getaway with their new lover.
What most people don't understand is that famous doesn't mean rich. Over the years in the mortgage business in Los Angeles I have been privy to thousands of people's financial details...many of them famous. Many of the jobs that make people famous are temporary, giving them short spurts of money followed by long periods of unemployment...and many never get high paying work in the entertainment field again. And those on reality shows aren't getting paid much at all...it's rarely reality and more about fantasy. But what is modeled to the world by this sector is a life of endless travel & shopping with Starbucks in hand...not one of them has to trudge to an office in the morning. It all looks so fantastic on the pages of a magazine but it rarely is.
2. Easy access to credit. Back in 1901 people didn't carry credit cards. You could only buy what you had the money to buy, thus you were prevented from getting into debt. You had to save your money over time for big purchases. In 2015 the average household credit card debt was reported to be $15,675. Americans spend more than they earn. This does not bode well for a lavish retirement.
3. We're removed from our money. Unlike back in 1901...today people rarely carry cash. Instead you hold your phone up to the scanner at Starbucks, swipe your card all over town or push a button for one click ordering on Amazon. We aren't handing over cash thus the tendency to overspend is much greater. It doesn't even seem like you're spending money when you swipe or click. Most people aren't keeping track of how much they spend or where there money is going and they're going broke one unnecessary purchase at a time.
At some point we need to take responsibility for our future and begin to spend less than we earn and invest the surplus...this does not mean we suffer. Many people live big, fun lives without spending everything they earn. If you're one of the millions of Americans with no savings how are you planning on funding your retirement which is basically a permanent vacation? If today you choose to put a vacation on your credit card there is no way you will be able to afford your upcoming 20 year vacation (7300 days). It's time to get real and devise a plan. All of those vacations, lattes, gadgets and dinners out will only leave you with fleeting feelings of joy...then later you'll be left with the permanent feeling of a cold hard sidewalk as you lay down to sleep.