Friday, April 22, 2016

In case you missed it, there...

...were two really good pieces this week about personal finance.

The first was by Neal Gabler, "The Secret Shame of Middle-Class Americans: Nearly half of Americans would have trouble finding $400 to pay for an emergency. I’m one of them." The second was by Megan McArdle, in answer to the first, "Parents Are Bankrupting Themselves to Look Adequate." They're both worth a read.

First, from Mr. Gabler (all bold emphasis mine):

The Fed asked respondents how they would pay for a $400 emergency. The answer: 47 PERCENT of respondents said that either they would cover the expense by borrowing or selling something, or they would not be able to come up with the $400 at all. FOUR HUNDRED DOLLARS! Who knew?

Well, I knew. I knew because I am in that 47 percent.

Remember Neal Gabler?  For three years, he "was one of the replacements for Gene Siskel and Roger Ebert on the PBS movie-review show Sneak Previews."

You wouldn’t know any of that to look at me. I like to think I appear reasonably prosperous. Nor would you know it to look at my résumé. I have had a passably good career as a writer—five books, hundreds of articles published, a number of awards and fellowships, and a small (very small) but respectable reputation. You wouldn’t even know it to look at my tax return. I am nowhere near rich, but I have typically made a solid middle- or even, at times, upper-middle-class income, which is about all a writer can expect, even a writer who also teaches and lectures and writes television scripts, as I do.

Gabler takes responsibility:

Choice, often in the face of ignorance, is certainly part of the story. Take me. I plead guilty. I am a financial illiterate, or worse—an ignoramus. I don’t offer that as an excuse, just as a fact. I made choices without thinking through the financial implications—in part because I didn’t know about those implications, and in part because I assumed I would always overcome any adversity, should it arrive. I chose to become a writer, which is a financially perilous profession, rather than do something more lucrative. I chose to live in New York rather than in a place with a lower cost of living. I chose to have two children. I chose to write long books that required years of work, even though my advances would be stretched to the breaking point and, it turned out, beyond. We all make those sorts of choices, and they obviously affect, even determine, our bottom line. But, without getting too metaphysical about it, these are the choices that define who we are. We don’t make them with our financial well-being in mind, though maybe we should. We make them with our lives in mind. The alternative is to be another person.

In retrospect, of course, my problem was simple: too little income, too many expenses.

I don’t ask for or expect any sympathy. I am responsible for my quagmire—no one else. I didn’t get gulled into overextending myself by unscrupulous credit merchants. Basically, I screwed up, royally. I lived beyond my means, primarily because my means kept dwindling. I didn’t take the actions I should have taken, like selling my house and downsizing, though selling might not have covered what I owed on my mortgage. And let me be clear that I am not crying over my plight. I have it a lot better than many, probably most, Americans—which is my point. Maybe we all screwed up. Maybe the 47 percent of American adults who would have trouble with a $400 emergency should have done things differently and more rationally. Maybe we all lived more grandly than we should have. But I doubt that brushstroke should be applied so broadly. Many middle-class wage earners are victims of the economy, and, perhaps, of that great, glowing, irresistible American promise that has been drummed into our heads since birth: Just work hard and you can have it all.

Here comes the money quote, to which Ms. McArdle responds in her piece:

My wife continued to work, and we managed to scrape by, though child care and then private schools crimped our finances. No, we didn’t have to send our girls to private schools. We could have sent them to the public school in our neighborhood, except that it wasn’t very good, and we resolved to sacrifice our own comforts to give our daughters theirs. Some economists attribute the need for credit and the drive to spend with the “keeping up with the Joneses” syndrome, which is so prevalent in America. I never wanted to keep up with the Joneses. But, like many Americans, I wanted my children to keep up with the Joneses’ children, because I knew how easily my girls could be marginalized in a society where nearly all the rewards go to a small, well-educated elite. (All right, I wanted them to be winners.)

And it payed off:

Although I don’t have any regrets about that choice—one daughter went to Stanford, was a Rhodes Scholar, and is now at Harvard Medical School; the other went to Emory, joined WorldTeach and then AmeriCorps, got a master’s degree from the University of Texas, and became a licensed clinical social worker specializing in traumatized children—paying that tariff meant there would be no inheritance when my parents passed on.

Mr. Gabler concludes by saying:

In effect, economics comes down to a great Bruce Eric Kaplan New Yorker cartoon that was captioned: “We thought it was a rough patch, but it turned out to be our life.”

In her piece, Ms. McArdle gets right to the point:

To be sure, Gabler is perhaps not as brutally honest with himself as he might be. “I never wanted to keep up with the Joneses,” he says, while recounting his decisions to live in Brooklyn, and then in the Hamptons, while sending his daughters to private school and expensive colleges. This is keeping up with the Joneses, of course. Gabler happens to belong to a social class in which the markers of success are living in the orbit of an expensive coastal city and educating your children at an elite school, not necessarily driving a fancy car or having a second home on some Florida golf course. Yet the former often costs more than the latter would. The majority of the people in the world do not live in the New York metropolitan area, and do not send their kids to Stanford University, and yet they somehow manage to get through their days -- even, I dare say, to occasionally live worthy lives and die happy.

And yet she admits:’s hard not to want to give the best to your kids.

On the East Coast, affluent parents of bright children explain that they absolutely must live in the best possible school district, and send their kid to the most prestigious possible college. In “flyover country,” parents explain that they have to have a nice new car for the kids, because safety. Also a bevy of very expensive activities, from travel sports to marching band, because otherwise their lives will be blighted. Auto accidents are declining, and bright, motivated kids are probably going to do OK no matter where they go to school. Yet parents can convince themselves to spend near-infinite amounts seeking marginal improvements.

The problem is worst on the coasts, where those amounts really do seem to spiral towards infinity (but of course, incomes are higher there too). But it’s everywhere; people are locked in a status arms race that somehow often comes to focus on the happiness or safety of their kids.

Here is where, I think, Ms. McArdle gets closest -- but only closest -- to the truth:

The truth is that your kids will care about how nice your car is, about whether they can be on travel hockey with their friends, about whether they can go to fancy schools like their friends. And if you were raised in a social class that regards any of these things as the basics of a decent life, you will feel horrible about denying them. 

As the father of two grown sons, I would put it just a little bit differently.

I think what motivates parents most of all is the potential for shame in telling your kids that you just can't afford X, Y or Z. Because you're a failure in life.

When we made the decision to move to the suburbs back in 1992 I didn't want to be the poorest guy in town, which would have been the case had we moved to Winnetka, for example. I just couldn't bear the thought of having to tell my kids that, no, we couldn't go to our vacation home in Vail for spring break because we didn't have a vacation home in Vail. In fact, we didn't have a vacation home at all. Because their dad was not some private equity whiz like their classmate's father -- what was his name, again? -- oh, yeah, Bruce Rauner. (And what the hell is "private equity," anyway?) No, their dad was just a jamoke who worked on the floor of the Chicago Mercantile Exchange, making a respectable, if not astronomical, living.

So we moved to Glenview instead, where I felt like we were comfortably in the middle of the pack. I'm sure my sons had friends whose parents had vacation homes in places like Vail, but they also had friends who came from more modest backgrounds than us.

The trick with kids, I think, is that they don't know what they don't have. But, at the same time, they also know what they don't have. Huh?

In other words, your kids may not realize that they don't live in Winnetka, but they also don't know how people in Winnetka live. But if they grow up in Glenview they know whether or not they can participate in "travel sports or marching band," as Ms. McArdle notes. So the trick, again, is to live in a town in which you can keep up with the Joneses. Because if everybody else goes to Vail on spring break except your family your kid will look at you like you're a loser. (And you may indeed feel like one, even if you're reasonably successful.) And if all of his friends play travel hockey except him you'll feel incredibly guilty. (I know I would have.)

What's the bottom line here? I don't know. Live within your means, I suppose. Ms. McArdle's right. But it's food for thought, and these are two good pieces.

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