Sunday, February 3, 2019

Paycheck to paycheck

by Rod Williams, Feb. 3, 2019 - As soon as the government shut down occured, the media started running stories about how devastating the shutdown would be on government workers who are living "paycheck to paycheck."  My initial reaction was that this was so much hype to tilt public opinion against the president. After all, government workers get paid pretty darn well compared to the private sector or compared to state or local government employees doing comparable jobs.  Surely, I reasoned, they could miss a paycheck without it being a disaster.

Upon reflection however, I realized the shut down would be devastating for many who live paycheck to paycheck.  And, many do. However, living paycheck to paycheck is simply irresponsible and a reflective of stupidity. I do not think federal government employees are more irresponsible and stupid than the average person, however.  That is probably typical of many people.

I spend my career working with poor people and much of what I did was teach poor people how to become homeowners.  That most often involved teaching them how to change their habits and values. It involved teaching them to set priorities and learn delayed gratification and exercise personal discipline. I did not teach this class as one who did not know what they were talking about.  I have experienced poverty.  It was not fun but I know what it is like. I survived it without ever having my electricity cut off or without being evicted or filing bankruptcy. I managed my poverty until things improved. I could talk to poor people and knew what I was talking about

About 2006 we started seeing a new class of clientele at our agency; not poor people wanting to become homeowners but middle class people wanting to avoid losing their home.  We did some good. We helped many people get financial assistance to save their home and helped many clients get modifications or repayment plans that allowed them to keep their home.  As the housing crisis grew, my work shifted entirely to mortgage default counseling.  I am now mostly retired and don't need to work but still work part-time and see about two clients a week.  It keeps my mind sharp and it is rewarding to help someone through a crisis.

My experience working with middle class people who are about to lose their home and poor people who wanted to achieve the dream of home ownership taught me something.  The poor and the middle class are not much different; the middle class just have more money.  I know my sample may be skewered because of the middle class I saw, I only saw those who were facing a crisis.  However, giving the report of how missing one paycheck impacted federal workers, I think my observation is quite accurate.

It is sad that missing one paycheck could cause someone to be unable to pay their house payment or buy groceries.  It is sad that one lives paycheck to paycheck.  However, there is simply no excuse for living that way.  As a housing counselor I saw people lose their home because as soon as they got laid off and missed their first paycheck, they missed a house payment.  Many people who lost their home could have avoided losing their home had they had some saving.

I know people will object and say, "I don't make enough money to save."  That is simply not true. Savings is simply a matter of prioritizing. It is a question of management and exercising a little discipline and establishing some priorities. I tell clients that savings is "paying yourself first."  In examining a client's income and expense report, after I ask them in detail how much they spend on this or that, I then review their credit card statements and bank statement. Often people don't know how much money they make and they don't know how they spend it. Often they spend it foolishly.

I was working with one client who was facing foreclosure. After developing her budget sheet, I then reviewed her bank statement and saw a fee for something like $115 to a place with the name of something like "Dragon's Lair."  I asked her what that expenditure was for and she said it was for a tattoo. She went on to explain that with all she was going though she needed to do something for herself. "I felt I deserved it, " she said.  That is not an uncommon attitude. People spend money on something because they "deserve it."

I was working with one couple who had missed a house payment but had gone out and traded cars and had a large car payment of almost $500. When I asked the client why they had taken on this new debt the wife told me that she was pregnant and they already had one child and, "we had to have an SUV."  People feel entitled to things weather they can afford them or not.

I see many people who have no accumulated saving for retirement. In an article by David Moon that appeared in the Tennessean today, he says only 52% of Americans have any type of retirement savings.  In my position as a housing counselor, I have seen people who had an employer contribution retirement plan where the employer would match what the employee contributed and yet the employee did not participate.  There is a lot of free money that people are just turning down. If the employer matches the employee's contribution that is a 100% return! Putting it into such an account also makes the money not subject to taxes which makes the effective return 125% or something, and then if you assumes the money is invested and grows at 10% that makes the return 135%.  These employees by refusing to save $100 are saying, "no thank you, keep your $135."  They are leaving money lying on the table and refusing to pick it up.

I have seen people who spend enough daily on Starbucks coffee to have a week's paycheck in the bank in a few months. There are many people who could build a nice nest egg if they would exercise six months' discipline.

As a conservative, I have always believed in maximum freedom for the individual. When it comes to poor people this has caused me to advocate for food stamps as oppose to food commodities and housing vouchers as opposed to public housing and to entertain ideas such as a guaranteed minimum income to replace the bundle of current welfare programs.  I have thought that Social Security should be replaced with a retirement fund owned by the individual.  This rest on a foundation of believe in individual autonomy and personal freedom.  I hate to say I may have been wrong about a lot of things, but I am coming to the conclusion that most people are too stupid to be free.  If given choices they will make wrong choices. Unfortunately, many people need to be treated like children and need someone to take care of them.

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